Tag: Wolfgang Mundhau

Must-read: Wolfgang Munchau: “The Revenge of Globalisation’s Losers”

Posted on by Brad DeLong

Must-Read: Wolfgang Munchau: The Revenge of Globalisation’s Losers: “A process once hailed for delivering universal benefit now faces a political backlash…

…The establishment view, in Europe at least, is that states have neglected to forge the economic reforms necessary to make us more competitive globally. I would like to offer an alternative view. The failure of globalisation in the west is in fact down to democracies failure to cope with the economic shocks that inevitably result from globalisation, such as the stagnation of real average incomes for two decades. Another shock has been the global financial crisis–a consequence of globalisation–and its permanent impact on long-term economic growth….

Voters’ insurrection is neither shocking nor irrational. Why should French voters cheer labour market reforms if it could result in the loss of their jobs, with no hope of a new one?… Germany’s acclaimed labour market reforms in 2003 succeeded in the short term because they raised the country’s cost competitiveness through lower wages relative to other advanced countries. The reforms produced a state of near full employment only because no other country did the same. If others had followed, there would have been no net gain. The reforms had a big downside. They reduced relative prices in Germany and pushed up net exports in turn generating massive savings outflows, the deep cause of the imbalances that led to the eurozone crisis. Reforms such as these can hardly be the recipe for how advanced nations should address the problem of globalisation….

Globalisation has overwhelmed western societies politically and technically. There is no way we can, or should, hide from it. But we have to manage the change. This means accepting that the optimal moment for the next trade agreement, or market liberalisation, may not be right now.

Must-read: Wolfgang Munchau: “The Errors Behind Europe’s Many Crises”

Posted on by Brad DeLong

Must-Read: Wolfgang Munchau: The Errors Behind Europe’s Many Crises: “The EU was wrong to construct a single currency without a proper banking union…

…wrong to create a passport-free travel zone without a common border police force and immigration policy. [And] I would add EU enlargement… the haste with which it was pursued. The cardinal mistake of our time was the decision to muddle through the eurozone crisis. Europe’s political leadership failed to generate the public support for what was needed: creating a political and economic union. Instead, the European Council did the minimum necessary…. There are four channels through which that policy contributed to the broader instability….

First… the EU has the capacity only to deal with one big crisis at a time…. Second… the conflation, real or imaginary, of two more crises. The Greek economy continues to contract… refugees have been trapped in Greece… since Macedonia closed the border…. There are the fake connections. Poland has used last week’s Brussels bombings as a pretext for questioning a commitment to accept 7,000 refugees… an interaction between the terrorist attacks and the prospect of British exit…. Third… the output of several eurozone countries has yet to return to pre-crisis levels. Security… was among the areas most affected by austerity…. The widening income gap between rich and poor — and north and south….

Fourth… a generalised loss of trust and political capital…. Populist parties on the left and the right are exploiting the union’s failures…. The combination of these four channels frustrates perfectly good ideas for further projects aimed at European integration–those that would benefit everybody, such as central agencies to co-ordinate the fight against terrorism and to deal with the influx of refugees. If the EU had not messed up the previous crises, people would look at a European immigration policy or an antiterrorism task force with a more open mind. But would you trust with your own security somebody who cannot even contain a medium-sized financial crisis?…

Economic history has shown… that efforts to muddle through financial crises never work…. For the EU it was a catastrophic policy error… an economic depression… destroyed public confidence in the EU and in the very idea of European integration.