On Europe, Paul Krugman Seeks to Rebut Keynes!

The actual alternatives are “reality” and “fantasy

By Kyle Smith

Casting our gaze over the history of World War I, it’s easy to see the horrible insanity that accompanied the forging of each link in the chain of causation. The horrible insanity, and also the horrible logic. Once it got started, how could it have happened any differently? Internally, it all made sense. And so did the resolution, which would unleash far greater horrors, and which was built on three words: Make Germany pay.

It’s ironic that the Nobel-winning economist Paul Krugman is today’s great defender and apostle of John Maynard Keynes, because Krugman’s prescription for the disease ravaging Europe is Make Germany Pay. Yet Keynes made his name by exposing the folly of that phrase in his monumental work “The Economic Consequences of the Peace.” Not that Krugman’s ideas much matter, because Germany isn’t going to pay again, the Euro will fall apart as a result and nobody can say exactly what the consequences will be, except that they will be dire.

A front-page article in The Times of London this week showed a band of glowering fascists, carrying aloft a thinly-disguised swastika, marching through the streets of Salonika in celebration of their neo-Nazi party’s capture of seven percent of the vote in parliamentary elections. While skinheads make for a catchy picture, the far-left party Syriza, whose members include hard-core Marxists, did even better than the neo-Nazis, capturing one-sixth of the seats in Parliament. Both extremist parties are running on the same anti-austerity platform. The country is hurtling toward default and exit from the Euro, to the cheers of  Paul Krugman, who led a recent piece with the astonishing words, “The French are revolting. The Greeks, too. And it’s about time.” It isn’t often that you hear praise for voter support of neo-Nazis and communists from a major newspaper, but then again Krugman is only writing for The New York Times.

The political choice facing Europe, we are told by Krugman and others, is between “austerity” and “growth.” When phrased that way, it sounds easy, doesn’t it? It’s like choosing between “lima beans” and “chocolate ice cream.” Who is against growth?

The actual alternatives are “reality” and “fantasy.” The Euro periphery had a free ride for a long time, borrowing its sober daddy Germany’s Porsche and going for a joy ride. With the credit card it found in the glove compartment, it bought itself a case of ouzo — and kept going until the Porsche was floating in the Mediterranean Sea. Germany paid for the Porsche, but it won’t be loaning out the keys to the next one. Asking the European Central Bank to buy more bonds, thus monetizing the debt and kicking off an inflation spree? Asking for super-duper “Eurobonds” that will rely on German creditworthiness? All of this amounts to asking Papa Deutschland for another Porsche. It equals Make Germany Pay. Why should it? Germany was promised “no bailouts” when it agreed to the Euro in the first place.

Krugman is incorrect when he says, “the French are “revolting.” Not yet. Going by off-the-record quotes fed to the press by his aides, the incoming Socialist President François Hollande (who barely beat the universally despised center-right incumbent Nicolas Sarkozy on Sunday) appears to be aware that the ideas that got him elected are absurd. Hollande bashed Germany and the recent fiscal pact agreed to by Sarkozy (which Angela Merkel has vowed not to renegotiate), promised near-confiscatory 75 percent marginal income taxes on the rich that would simply result in chasing France’s best and brightest to London, and mused about imposing a financial transaction tax that would mainly hit London (Make Britain Pay, Too!); a tax that is about as likely to meet with favor across the Channel as renaming Waterloo Station La Gare De Bonaparte.

Hollande’s army of lefty bureaucrats appears to be backpedaling at a speed associated with that other French army in 1940. “Nobody expects that we simply arrive in power and hand out money,” says Michel Sapin, who is said to be a leading candidate to be Hollande’s finance minister. Well, nobody except Paul Krugman and a majority of French voters, or at least a majority of those voters who didn’t turn in spoiled ballots. (Hollande won by a million votes; twice that many voided their ballots).

But the vaguely comical Hollande has room to maneuver, clowning space, because France is not yet in crisis. The markets have largely shrugged off Hollande’s victory, and a German official’s reaction was, according to the FT, “Oh well.”

Other developments aren’t so easily ignored, though many a media weather man strikes a sunny attitude. Reuters noted of Greece’s far-left Syriza leader Alexis Tsiparas in game-show-host style that he is “a soccer fan who supports Athens-based Panathinaikos” and that “he and his partner, high school sweetheart Betty, expect their second son in July.” Sounds like a swell fellow! Too bad about the Marxist element of his party, and too bad that he has declared Greek austerity/reality “null and void.” Surely this will all work itself out….somehow. As one particularly fatuous observer put it on CNN.com, “the leaders of France and Germany are expected to meet next week, shortly after Hollande takes office. They have every reason to pursue reasonable policies that will benefit everyone.” Great idea. Except I wonder why no one has come up with that obvious solution of “reasonable policies that will benefit everyone” before.

Serious austerity hasn’t even begun yet. But what historian Barbara Tuchman termed the March of Folly is picking up speed. Greece’s flirtation with extremism (two-thirds of voters on Sunday rejected austerity/reality) will become a love affair, and it’ll be divorced from the Euro. Cue chaos. How long before what’s wrong with Greece hits Spain, which now looks a lot like the Greece of a year or two ago? How long after that till it hits Italy? Get yourself a big bucket of popcorn and enjoy the show, Mr. Krugman. The real revolting hasn’t even begun yet.