A small but significant earthquake has occurred over the past few days in Europe. The victory of the Socialist party in the Presidential race combined with the election results in Greece along with the drubbing of the Conservative and Liberal Democrat pro-austerity party in Britain presage hopefully a shift in policy in response to the economic crisis away from the destructive and failed policies of austerity that have been implemented throughout Europe. Deficit hysteria and the lack of a proper central bank to manage debt and a hidebound austerity oriented elite remote from public opinion has pushed Europe in this dangerous direction. But now democratic elections have allowed the people to push back. Increased deficits and debt are largely the response of the macro-economic system to the severe downturn that struck Europe following the financial crisis. The best way to reverse them is to avoid austerity and work to lower unemployment rates and promote investment and spending to increase aggregate demand and improve competitivity through education, skill building and where appropriate managed trade and sensible adjustment of the exchange value of the currency.The bond market cannot rescue democracies from the vagaries and irrationalities of the business cycle.
I await with considerable hope the blossoming of this new agenda in Europe. M.Hollande, Mr. Miliband (whose father was one of my favourite teachers at the L.S.E.) and the new Greek leadership as well as other progressive Europeans need to deliver as much as possible in the coming months.