Must-Read: Paul Krugman: Against Eurotimidity: “The authors really are the best and brightest…. So I’d really like to say nice things…

…Unfortunately… is this really all they can offer? I understand that in the effort to reach consensus one must trim back the more intellectually daring and politically difficult parts of what an individual economist might propose. But in this case the search for consensus seems to have leached out practically all the substance…. They’re calling for liquidity support in times of crisis, and I think debt relief if necessary. But that’s sort of how Europe is already trying to muddle through. They don’t call for fiscal integration; they don’t even call for a euro-wide system of deposit insurance. I’m really not sure what they are proposing, beyond neatening up the organization chart. They allude to the possibility of secular stagnation, which some of us consider a clear argument for fiscal stimulus and higher inflation targets. But all they suggest is… structural reform, the universal elixir of elites.

The only really new thing I thought I saw was the declaration that “the level of expenditure – rather than the deficit – is the main problem” coupled with a call for expenditure rules. But where is that coming from? There is no correlation between economic performance in the euro crisis and the level of government spending as a share of GDP — Austria has a big government, Ireland and Spain small ones by European standards. And absent some clear evidence that big G was the problem, why declare that national sovereignty on the size of the public sector must be reduced?… From a macro perspective, Europe is a depressed economy with inflation well below a reasonable target, desperately in need of more demand, with this aggregate problem exacerbated by the problems of adjustment within a single currency. And here we have a manifesto calling for smaller government and structural reform. The authors of the manifesto aren’t neoliberal ideologues. So what happened?