The Greek economy has shrivelled to three quarters of what it was three years ago, before embarking on its successive turnaround-cum-bailout plans. Euro zone governments keep contributing religiously to their own recession by forcing ever higher degrees of pain on their sick economies.
Spain is slashing public spending and wonders why its gross domestic product is shrinking as well. Britain is slowly sinking under the mindless policies of austerity without perspective. Meanwhile, central bankers keep pushing for ever stricter fiscal discipline, under the eternal slogan of ideologues throughout centuries: “There’s no other way.”
From the unlikely corner of the International Monetary Fund now comes a call to reason: Stop the madness. There’s a time for cuts and a time for growth – but these cannot be done simultaneously.
Christine Lagarde, the IMF managing director, called for less front-loaded austerity this week. The Fund had given a more numbers-filled version of the same prescription earlier in its annual report, indicating that it had been wrong, more or less, in its previous estimates of austerity’s impact on growth. The consequences of brutal fiscal shrinking are more severe than it estimated – as revealed by the past years’ record.
Ms. Lagarde is right, although she would be more credible if she hadn’t once been just another European austerity cheerleader during her five years as France’s finance minister. So her current statements seem to reflect the position of her organization more than her own.
The problem is that no European leader dares say the same thing. It would take a bold finance minister today to go to a euro zone meeting and state calmly that fiscal discipline is for good times, not bad. Some are afraid of Germany, others fear markets.
Meanwhile it is left to the IMF’s economists to state the obvious. The record is clear. Austerity hasn’t worked. There’s little hope it will. Let’s first work on growth. Then we’ll be virtuous.