Europe Finally Gets It: Austerity Isn't the Answer

Paul Krugman: Voters clearly 'wiser' than their leaders
By Matt Cantor,  Newser Staff
Posted May 7, 2012 1:08 PM CDT
Europe Finally Gets It: Austerity Isn't the Answer
French president-elect Francois Hollande.   (AP Photo/Francois Mori)

(Newser) – Paul Krugman is applauding France and Greece for the results of their elections: "Time is clearly running out for the strategy of recovery through austerity—and that’s a good thing," writes the longtime critic of austerity measures in the New York Times. Austerity measures depend on a false "confidence fairy" that asserts that consumer and business spending will rise if government spending is cut. Just look at Ireland, whose borrowing costs remain higher than Spain and Italy's despite following the strategy.

story continues below

In short, "Europe’s voters are wiser than the Continent’s best and brightest," Krugman writes. So how do we address Europe's financial troubles? Leaders could ditch the euro, but that would be disastrous for dreams of a united continent. Instead, it's time for "expansionary policies": Europe's Central Bank should "drop its obsession with inflation and focus on growth." That may not gel with German claims that its austerity measures saved its economy—but that story's not true. It was an "inflationary boom" among its neighbors that boosted Germany, and such a boom would help those neighbors now. Click for Krugman's full column. (Read more Francois Hollande stories.)

We use cookies. By Clicking "OK" or any content on this site, you agree to allow cookies to be placed. Read more in our privacy policy.
Get the news faster.
Tap to install our app.
Install the Newser News app
in two easy steps:
1. Tap in your navigation bar.
2. Tap to Add to Home Screen.