Opinion: Eurozone 'turning corner from recession to recovery' says IMF

The International Monetary Fund (IMF) has just published its World Economic Outlook. Recently, Christine Lagarde (pictured) warned that deflation (particularly for the eurozone) could damage global economic recovery. Lagarde’s comments came after Eurostat released the annual inflation figures for the EU, showing that the EU is already suffering from disinflation, with inflation down to 0.8% for the eurozone. Over several months inflation has run below the targets set by central banks. These targets were set in the days when inflation was seen to be the genie in the bottle. While inflation undoubtedly has its down side, it does help to reduce debt and Europe can’t be accused of having a shortage of debt!

I am now going to break Godwin’s Law! But…

In Germany, the association of inflation with the rise of the Nazi party and the ills that followed, is an article of faith. It is the hyperinflation of the Weimar Republic that is usually cited as the precursor to national disaster, but as Albert Ritschl pointed out inflation actually had the benefit of reducing Germany’s war reparations following World War 1. However, the more likely spur was austerity, rather than hyperinflation. Heinrich Brüning , a Social Democratic Party (SPD) leader who implemented austerity policies (see Mark Blyth, Austerity) in the early 1930s, led to the anti-austerity party (the National Socialist Party) picking up 18.3% of the vote and becoming the second largest party in Germany. In the words of Blyth, ‘Perhaps the oddest thing about the entire German experience with austerity in the 1930s was how it was ruthlessly implemented by the left and so quickly abandoned by the right’. As we approach European elections in 2014 it is fully expected that the far right will make gains – are there no lessons from history?

Coming back to today, the IMF’s World Economic Outlook tells us that we can expect growth, but it is fragile. We are all meant to be tremendously grateful and take out the bunting, but growth is quite predictable when the starting point is a nadir. We are in a very dangerous point of history where states, who have acquired large sovereign debt – largely by picking up the tab caused by the failings of the financial system, are implementing a policy of austerity thought to be imposed (as the citizen sees it) by the IMF, the ECB and the European Commission.

Wolfgang Schäuble would like to see every nation have a surplus like Germany – without understanding that whilst this might work for a household budget, it does not apply to the international economy, where one country’s surplus is another’s deficit. Schäuble is also anxious for us not to stymie the banks with legislation that would force the banks to limit their dependency on public subsidy by separating their retail and speculative activities. Schäuble still hasn’t understood that the morality play to emerge from this crisis isn’t from the excessive public spending of Greece, but the excessive greed of the financial sector.

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