Europe’s Sluggish Recovery: A Delusion of Growth
The spring meeting of the International Monetary Fund and the World Bank, which concluded Sunday, was all about our nascent global recovery. “We are at the point where the economy has turned the corner or is turning the corner of the great recession,” Christine Lagarde, the IMF’s managing director, told Charlie Roseduring a curtain-raising appearance Friday evening.
It is fair enough, but there is cause for relief and celebration only for those who take their economics from a technocratic perspective.
Spain, Ireland, Greece, and other critical cases now promise to grow in 2014, but at miniscule rates. The U.S. economy is set to expand by 2.75 percent, according to theIMF’s latest estimates—down marginally from last year. The industrialized nations, Lagarde says, are now positioned to lead the world economy.
There is much less here than meets the eye. For one thing, the fund has been consistently over-optimistic in its quarterly reports. For another, changes in GDP that move or maintain the needle marginally north of zero amount to a statistical recovery and not much more.
This is a moment to take stock, certainly. But the figures will lie if you let them. What kind of recovery now registers in Europe, which is the main event in this turning of the corner? How did we get here and what is next? Does GDP expansion of, say, 0.5 percent represent solid ground?
These are the questions worth asking. And the answers are not, so far, encouraging.
In effect, the European Union has spent the past five years implementing a variation on the Anglo–American recovery model, the core of which is a strategy based on neoliberal austerity. Translation in plain English: The E.U. is now all set up for a jobless recovery.
True, this approach has delivered growth in the U.S. But as many economists argue—no, not just Paul Krugman—the numbers compare poorly with what could have been accomplished if discipline were better balanced with stimulus that restored employment and built infrastructure that would yield long-term productive activity.
Look at it this way, and the feeble GDP numbers are positively alarming next to the E.U.s calamitous unemployment: 27.5 percent in Greece, 26.6 percent in Spain, a just-set record of 13 percent in Italy. As to capital assets, the story has been all about shrinkage, so it is come-from-behind time.
It is important to be fair to Lagarde and others of like mind. She and her chief economist, Olivier Blanchard, made headlines two years ago when, during the pitched battle between Keynesians and “austerians,” they denounced the latter as unbalanced and extreme.
The Keynesians won that match on the merits, however many then ignored the facts in the service of their political motivations. The good news coming out of the spring meeting in Washington this past weekend is that the case against unalloyed austerity is not altogether forgotten.
“The overriding topic for discussion will be the topic of growth, quest for higher growth, better quality growth, more inclusive growth and sustainable growth,” Lagarde said, as things got under way. “We need to act now.”
You have to like the sound of this. In effect, Lagarde calls for a redefinition of “recovery” that puts econometrics in its place and incorporates social, political, and microeconomic factors. It is exactly what is needed.
Then you have to ask, “So where’s the beef coming from? What’s the plan?” This column cheered Lagarde and Blanchard when they delivered their critique of neoliberal extremism, notably the British variety. Two years on, I cannot point to a single thing that changed as a result of it.
There is yet less margin for error or blind eyes now. In an annual report issued in mid–January, the International Labor Organization noted that the net loss of jobs since the crisis six years ago widened in 2013, to 62 million.
That is a global figure. “In the Developed Economies and European Union region, 8.6 percent of the labor force is unemployed, which is almost 3 percentage points higher than in 2007,” the ILO reported.
The report is titled “Risk of a Jobless Recovery?” I would eliminate the question mark at the very least. In the organization’s words: “Given weak demand, uncertain sources of future demand and ample liquidity, large firms have tended to buy back shares and increase dividend payments to shareholders, rather than investing in the real economy.” By any other term, this is the nomenclature of a jobless recovery.
The IMF–World Bank gathering spent considerable time reviewing the Ukraine crisis, with the fund’s pending bailout, worth $14 billion to $18 billion, in view. As it happens, this is a good first test of the international community’s intention of modifying its approach in crisis nations toward a more socially and politically informed strategy.
As far as one can make out, it is so far failing. Assembled officials spent plenty of time discussing further sanctions against Russia, which are none of the fund’s business, and not a second on how they might modify standard IMF conditionality to avert what is widely acknowledged to be the political risk of a severe austerity program.
These conditions include increases in gas prices, reduced regulation, higher taxes, cuts in public spending, and the removal of longstanding household subsidies. Consider the volatility in Kiev and now the eastern sections of the country. Is this not a golden opportunity for the fund to alter course as Lagarde calls for?
We cannot count on it—not at the fund, not (so far) among the E.U.’s technocrats. In consequence, we cannot count on anything other than a jobless recovery, and this will be a steep, stony path that may never produce sustained economic health.