Tony Blair's decision to welcome this new consensus is a further intriguing break with the past, holding out the promise of real change. Europe has grown tired of listening to its central bankers talk about the dangers of inflation; they look especially irrelevant now that the world seems to be on the brink of deflation and depression.
It remains to be seen how far Mr Blair will go on his new trek to the left. It may be that he is desperate not to be isolated, given Britain's self-exclusion from the launch of the European single currency, and that he remains opposed to the case for change.
If this is so, his fears are misplaced. No one wants to go back to the Seventies, or wants governments to finance their plans by borrowing while their economies shrink. There seems little hope in simply adopting the corporatist solutions of France and Germany, which are such failures at creating jobs when compared with Britain and the US. Their enervated systems should be no guide to the future.
This is not to counsel despair, or to say that nothing can be done. There are examples available, such as that of the Dutch, of low inflation coupled with falling unemployment. Flexible labour markets are one key to this. But that does not mean - as some British ministers seem still to believe - stripping away rights at work and social benefits. On the contrary, a decent welfare state and workers' rights are crucial in sustaining labour flexibility. Creating a continent of frightened workers, desperately clinging to their jobs, is no better vision of Europe's future than traditional reflation.
Some compromise may be possible. What if France and Germany were to adopt British "workfare" measures, cutting down on how much it costs for employers to take on extra staff? In return, Britain may have to agree to allowing some of the European Central Bank's reserves to be used for public works programmes, or agree to permitting borrowing for the same purpose. If so, there will have to be strict limits as to the amounts that can be raised in these situations: such measures may show effects only at the margins of the problem.
Policy towards the European Central Bank could also be reassessed. The Bank seems to be subject to very little political accountability, while even the American Federal Reserve and the Bundesbank can be influenced by the views of politicians. They are national bodies, against which national governments can mobilise national political legitimacy. Without that, the ECB may become a purely deflationary engine. What if the continent should enter the next economic downturn with levels of unemployment equal to those registered in the depths of the last recession?
An ECB without any political input would be much more likely if consensus cannot be reached among Europe's leaders. The consequence could be a replay of the Japanese scenario, in which fiscal policy is immovable in the face of all political pleas to the contrary, and in which only unpopular structural reforms, with unforeseeable social consequences, remain possible for governments.
Failure to agree would also make it more difficult to stabilise the euro's exchange rate with the yen and the dollar. Recent currency crises have shown just how desirable it is to have at least some stability, perhaps along the lines of the Louvre Accord, which established unpublished, "soft" exchange rates in 1987, but which broke down in the early Nineties. For too long, our leaders have told us that no medicine can cure Europe's ailing economy; now they have a chance to show that something can be done.Reuse content