In Which Jörg Asmussen Finally Cures Me Of A Delusion

SONY DSCI have been involved in European economic policy debates for, well, longer than I care to remember. Whatever the disagreements I always made a point of crediting my interlocutors with good (or at least not seriously malign) intentions and made a serious effort to understand people’s arguments even when, indeed especially when, I disagreed with them. On the whole I continue to think that is good policy and sharpens one’s own arguments. Across a (limited) range of views, reasonable people could disagree and weigh goals and means differently.

Of course with many it was fairly soon evidence that I was wasting my time, but I retained a residual faith that complete fools and utter knaves cannot make it to the top of important institutions in a society that is, even if highly imperfectly, meritocratic.

That has been shaken by the crisis. To complete the process along comes Jörg Asmussen. Jörg Asmussen is either an utter fool or a complete knave. And as ECB Director and before that deputy minister to a series of German finance ministers he has climbed the meritocratic pole. (By the way, he is also a member of the SPD.) It is not just that he supports contractionary fiscal policy and the weakening of labour market institutions in the teeth of an economic downturn. It is not just that he does so in mid-June 2013, after the catastrophic failure of said austerity policies have been revealed to even the most obtuse observer. It is not just that he, an appointed official, opposes the European Commission and the Council, which have hardly covered themselves in economic policy glory, but, just about to their credit, have belatedly recognised that they have been flogging a dead horse and have granted several countries extra time to achieve balanced state budgets.

No, what really makes you weep, what really destroys every vestige of confidence in European economic policymakers is that Asmussen does not even offer a serious argument for his recommendations. The pressure to delay austerity and structural reform measures (quotes from Handelsblatt, translations mine)

are not particularly helpful because they extend the timeframe for budgetary consolidation in some member states for an unjustifiably long period and so reduce the pressure for reform.

As every school child can see, this is not an argument, it is a tautology. The closest he gets to making a reasoned claim is

Without further structural reforms and rapid progress with fiscal consolidation, renewed tensions on government bond markets can easily occur.

To put it in Krugmanesque terms, that’s all the there that’s there. You have to be a school kid old enough to read a newspaper to see how threadbare an argument this is. First, non-euro countries that have not gone in for austerity (US, Japan) have not seen any rise in bond rates – on the contrary – so clearly there is no simple link between the two. On the other hand, the rise in sovereign-bond interest rates in the euro area occurred in spite of massive austerity pursued by the countries in question. This was due to the risk of ejection from the euro area and haircuts, that is reflected systemic weaknesses of the institutional architecture of the euro area. And the rate spreads declined very substantially when the ECB belatedly stepped up to the plate and acted like a proper central bank in a crisis, i.e. as a lender-of-last resort, partially offsetting those systemic weaknesses. It is clearly within the ECB’s power to end the threat of tensions on sovereign bond markets that its Director cites as a policy constraint: overnight and at the stroke of a pen (or sweep of the computer mouse). The simple fact is that it does not want to do so.

Which only leaves open the question: fool or knave? Can he really be so blind as not to see where his policy recommendations are leading? Is such a degree of witlessness credible? Or is he perfectly aware where they are leading, secretly pining for the destruction of the welfare state and a cowed and impoverished labour force in the periphery of the euro area – which of course will serve as a wake up call to what will be seen as a complacent Germany that it needs to start regaining  its lost competitiveness – time for an Agenda 2020?


  1. Aileen Cheetham says

    The cost of day to day living and the insecurity and anxiety about the future is to me and my friends creating a siege mentality where we hunker down, spend as little as possible, daren’t invest and has becoming almost paralysing.. it’s reflected in governments too.