6.18.2012

But Do We Want to Save It?

I recently noted a typically self-congratulatory post by Paul Krugman where he pointed to some analysis by Martin Wolf as proof that his own mooted plan to spend the EU into survival is the best possible path for European nations. While I have been coming around (albeit slowly) to the idea that austerity might not work in all nations, I wonder if those calling for 'reflation and redistribution' have even considered whether or not the EU really wants to be saved? That would seem to be step one in the 'how to save Europe' analysis, but it is not a step I see being taken by many of those who claim to have the medicine for what ails the old world.

As I noted in a recent comment section conversation with a reader from Greece, a break-up of the Union might not be the worst thing in the world for struggling nations whose link to a relatively strong currency has impacted trade imbalances and spending and has arguably contributed to the current crisis. Many would disagree with that analysis, but surely discussing issues like that, leading to a bigger discussion of whether or not the EU is better off remaining the EU in the first place should surely be debated more frequently than they are currently as the answers to those questions would inform the rest of the analysis.

Now, those who skip this level of analysis could perhaps argue that the inherent value of a united EU is embedded in discussions of how to save it, but I think that is ignoring a very important issue. What is interesting about this is that there could be some major decoupling of concepts here, and that splitting ideas up could actually allow the 'austerions' and 'Krugmaniacs' to both have their ways in an effective manner.

In other words, if the EU split up in some way, maybe with the stronger countries maintaining a block and the more troubled nations taking back autonomy and the ability to flex their central banking muscles, both sides could have their ways without being destructive. Under this scenario, the 'Krugmaniacs' could advocate for their economic visions in the troubled nations while the better-off countries remaining in a Union could stop sending cash across Europe at the expense of their own populations. I am not sure I buy the high redistribution/reflation scenario in Krugman's post, but it would certainly have a better chance of working in Greece, Spain et al. if they weren't shackled to an unyielding currency they don't have control over.

In essence, while Krugman seems to be suggesting that his analysis will allow the EU to survive, the issue of whether or not to use 'Krugnomics' really should be decoupled from whether the EU should be kept together at all costs.

Under the framework I put forth above, Greeks and Spaniards should want to leave the EU as it would allow their governments to put into place the spend and redistribute approach advocated by Krugman (and many citizens of those nations). However, a majority of Greeks are still against a split (as my aforementioned reader was) due to the fact that this would amount to abandonment of the nation by the rest of Europe. I believe I have shown that this ironically works against the very spending they are calling for. However, it is likely difficult to see this in the heat of passion, and I am not sure what the solution to that might be as political interaction seems to have failed.

In any case, it is not clear to my why those who are anti-austerity/pro-spending are also pro-EU. The one would seem to be much easier without the the structure of the other. Maybe it is that they believe that the stronger countries are needed to prop the weaker up? I believe currency revaluation in a post-membership scenario would serve much the same purpose, without the cost of nations losing their voices or, indeed, autonomy. This seem the preferable path in my mind, but the 'how to save the EU' discussion has obscured this almost to the point of nothingness.

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