Weak Southern Europe Keeps Blaming Berlin They made their own problems with fiscal irresponsibility

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WASHINGTON – I wonder whether the elected leaders of perennially weak and now impoverished Southern Europe  really grasp what is going on in their own countries. They routinely talk about their totally indigenous economic troubles as if they were unexpected calamities imposed on them by insensitive and selfish Northern European partners who are obsessed with austerity measures, this way impeding growth. Yes, Ladies and Gentlemen, the Prime Ministers of Italy and the President of France want to have growth oriented policies. But, what do you know, those close minded, stubborn Germans will not allow this to happen. They want more spending cuts that kill growth. This is most unfortunate.

Austerity and stimulus

Look, at some level it is totally fine to debate what the appropriate balance of policies that promote growth might be, while at the same reassuring creditors, via painful but necessary cuts, that fiscal disasters are finally under control. But now the austerity plans “imposed” on extremely reluctant and amazingly profligate Southern Europeans have become the officially endorsed excuse to justify perennial economic under performance.

True enough, appropriately fine tuned economic and monetary policies do matter. Of course they matter. But they are at best growth enablers. They do not make growth happen. If well crafted, they will contribute to the creation of a virtuous “enabling environment” that will encourage growth. That said, if the fundamentals for growth are not in place, you can have all the economic policy measures and all the stimulus you want and not much will happen.

Deep seated, indigenous problems  

And this is what French President Francois Hollande and newly arrived Italian Prime Minister Enrico Letta should seriously reflect upon. Their economies are not competitive not because of the nasty Germans but because of a stratification of anti-growth policies imposed over many decades by incompetent and ideologically biased leaders. To name a few: antiquated labor laws that create high costs and low flexibility, this way placing many economic sectors out of the global market. Add to the mix ancient education systems that cannot produce the super qualified technologists required in order to start cutting edge world class companies. Finally, there is little enterprise, mostly because of a risk averse, rent seeking dominant culture. As  a result, few new businesses come to life and little new employment is created. The young and the smart emigrate. This explains recessions, low growth and depression era like unemployment rates.

More public spending will change nothing

The idea that by reopening (with Merkel’s permission) the spending spigots all will be well because the economies will be lubricated by (borrowed, mind you) public moneys is a fantasy now bordering on lunacy. Sure enough, politically it is expedient to blame someone else for our own failures, especially if this some one else is Chancellor Merkel, easily portrayed as an inflexible, stubborn partner who dictates the law only because of Germany’s size and might. So, blame Merkel; and keep saying that you really, really want growth; but, alas, you are prevented from making it happen.

Tell the truth?

If you are stupid, you may actually believe this fantasy now used daily to explain what is going on in Greece, Spain, France and Italy. If you are smart, you really know better. But if you knew better, then it would be incumbent upon you, the elected leaders, to “tell the truth” to your citizens.

But here I slip into my own fantasy land. Elected leaders barely surviving in weak, despondent and potentially unstable  countries willing “to tell the truth”? Dream on.

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