Europe’s shifting emphasis from enforcing austerity to seeking economic growth marks a hollow victory for Nobel laureate Paul Krugman.
“I wish I’d been wrong for the sake of the world,” Krugman said in an interview with Bloomberg Television’s Carol Massar. “You can see that there has been a definite shift in opinion.”
The euro area’s push to revive confidence in its economy and financial markets by attacking budget deficits will be challenged at the ballot boxes of France and Greece on May 6 as the region’s economy skids toward its second recession in three years and unemployment nears 11 percent.
Leading demands for a revised strategy, French Socialist Francois Hollande, a reader of Krugman, tops President Nicolas Sarkozy in the polls with the warning that putting debt-cutting over expansion is “bringing desperation to people.” Elsewhere, Greeks are turning to anti-austerity parties, recession-wracked Spain and Italy are relaxing deficit targets, the Dutch government is splintering and European Central Bank President Mario Draghi is calling for a “growth compact.”
The U.K., which the International Monetary Fund reckons accounts for a third of the budget cuts in the 10 largest European Union countries, is already back in recession.
“You can’t do deficit reduction without the people” understanding and endorsing it, said Paul Martin, who as Canada’s finance minister through most of the 1990s turned a C$36 billion ($36 billion) shortfall into a surplus in three years. “Deficit reduction has to be balanced with growth and it’s pretty clear Europe has lost that balance.”
The debate has split policy makers, investors and academics alike as Europe pursued a cocktail of tax increases and spending cuts to beat a sovereign debt crisis that raged from Greece through Ireland and Portugal to the very heart of the single currency bloc.
In a camp that boasts fellow Nobel winner Joseph Stiglitz and former U.S. Treasury Secretary Lawrence Summers, Krugman’s voice has been loudest in warning that deploying austerity in a slump is self-defeating as it deepens the economic pain and can generate even higher debt. For pulpits, the 59-year-old Princeton University professor has a regular New York Times op- ed and blog. A book, “End This Depression Now!” was published this week and is already among the bestsellers on Amazon.com Inc.’s U.S. website.