Commenter Gavin Kostick has done impressive work on our behalf following up with Paul Krugman and Jean Claude Trichet on the austerity debate. The fruits of his efforts are contained on the Paul Krugman: When Austerity Fails thread, but many readers will probably have missed them on this fast moving blog.
The reply from the ECB and links provided by Paul Krugman are reproduced after the break. Thanks Gavin. (I also take back my dig from yesterday about the ECB’s poor communications.)
Dear M Trichet,
I read your articles with great interest.
I also read, and occasionally comment on http://www.irisheconomy.ie.
Prof. Krugman’s NY Times article “When Austerity Fails” has been posted on this site and has caused some debate here.
In particular, where Prof. Krugman states: “Nobody bought into the doctrine of expansionary austerity more thoroughly than Jean-Claude Trichet, the president of the European Central Bank, or E.C.B. Under his leadership the bank began preaching austerity as a universal economic elixir that should be imposed immediately everywhere, including in countries like Britain and the United States that still have high unemployment and aren’t facing any pressure from the financial markets.”
I have emailed Prof. Krugman to ask for particular speeches and articles to support this paragraph, and he has kindly sent some links back which I have posted to the site.*
In the interest of fairness and open debate, I was wondering if you have a most recent article/speech/source of evidence, that you would feel most accurately reflects your current position on the possibility of ‘expansionary austerity’, particularly, if selfishly, with regard to Ireland.
A simple link would be most welcome.
All the best,
Fishamble: The New Play CompanyDublin
*Paul Krugman supplied the following links to Gavin
Reply from ECB, 8th June, following email sent above.
Dear Mr Kostick,
Thank you for your email of 24 May 2011.
Please find below the following references that might be of your interest:
Introductory Statement of 5 May 2011:
Turning to fiscal policies, current information points to uneven developments in countries’ adherence to the agreed fiscal consolidation plans. There is a risk that, in some countries, fiscal balances may fall behind the targets agreed by the ECOFIN Council for the necessary and timely correction of excessive deficits. It is essential that all governments meet the fiscal balance targets for 2011 that they have announced. Where necessary, additional corrective measures must be implemented swiftly to ensure progress in achieving fiscal sustainability. The implementation of credible policies is crucial in view of ongoing financial market pressures.
At the same time, it is of the utmost importance that substantial and far reaching structural reforms be implemented urgently in the euro area in order to strengthen its growth potential, competitiveness and flexibility. In particular, countries which have high fiscal and external deficits or which are suffering from a loss of competitiveness should embark on comprehensive economic reforms. In the case of product markets, policies that enhance competition and innovation should, in particular, be further pursued to speed up restructuring and to bring about improvements in productivity. Regarding the labour market, the priority must be to enhance wage flexibility and incentives to work, and to remove labour market rigidities.
Interview with L’Agefi:
In Europe there are genuine concerns about the Union’s capacity to overcome the debt crisis facing the peripheral countries. The markets are highly sceptical. What can they be told in order to convince them of the relevance of the measures undertaken at the European level?
– On the issue of fiscal policies, I believe that the European Central Bank, through me, can reiterate certain points. Firstly, we always said that when there was a single currency but no political federation, there was a clear need for budgetary supervision. This was hotly disputed. I can remind you how in 2004 and 2005 major countries, notably France but also Germany and Italy, were telling us that we did not need this surveillance framework for fiscal policies. We had to fight very hard to preserve it. Today, this episode obviously seems totally outlandish, bearing in mind what has happened since. Some, moreover, said that the Stability and Growth Pact itself was “stupid”. We always said that the careful monitoring of fiscal policies was essential, as were healthy policies. This remains true today. However, one should add another pillar of governance, particularly within the euro area, in the form of monitoring competitiveness indicators, and unit production costs especially; the changes to these must also be tracked extremely carefully. For six years at least, we have been telling all European governments to monitor very closely changes to competitiveness indicators and imbalances within the euro area. We emphasise the three pillars necessary for European governance, all three of which must be improved substantially: supervision of fiscal policies, supervision of competitiveness indicators, and structural reforms. The central banks across the whole of the Eurosystem – the ECB and the national central banks, i.e. the Banque de France in France’s case, for instance – have a very clear message for governments: Europe’s governance must be improved decisively, and governments are not going far enough. We expect a great deal from the dialogue with Parliament in order to push governments towards taking a decisive step.
Contribution to Bild am Sonntag:
Several member states of the euro area have to adjust rigorously their economic and fiscal policy after having made mistakes in the past. All member countries must respect the principles of prudent fiscal policies. Substantial reforms are needed to ensure that common rules are improved and respected by all.
The speech in Frankfurt:
We have seen more than ever the importance of a timely correction of fiscal imbalances. Therefore, we cannot wait months or even a year until policies are corrected. In the meantime, spillovers would hurt other Member States.
In the past, the Council has often suspended the procedures of the Stability and Growth Pact, thereby weakening its credibility. This must not happen again. The newly agreed ‘comply or explain’ principle under fiscal surveillance still leaves too much room for discretion. Moreover, it does not cover the new macroeconomic surveillance framework.
We hope that this information is helpful.
EUROPEAN CENTRAL BANK
Press and Information Division
D-60311 Frankfurt am Main
Tel: +49 69 13 44 74 55
Fax: +49 69 13 44 74 0