Economic View: This 'lost decade' is not Europe's first

 

It is time to stand back. We have had a few days of deep disruption in both Greece and Spain, and for anyone who knows and respects both countries the sight of people rioting in the streets is profoundly troubling. Economic policy has to work with the grain of society: no government in a democracy can impose policies that are not seen, by a sizable majority of the population, to be both necessary and fair. Try and you might get sullen acquiescence for a while, but you will also get, at best, economic stagnation with all the corrosive effect that has on society.

This sense of despair across much of southern Europe is caught in the new forecasts from Ernst & Young for the eurozone economies, from which the graphs here are taken. As you can see, the surge in unemployment that has taken place shows only modest signs of receding two or three years away. The authors of the report write in terms of a "lost decade" for Europe – not what it said on the can when the single currency was sold to the people.

You can also see the scale of the squeeze on fiscal policy – the amount by which governments have chosen, or been forced, to tighten policy over the three-year period to 2013. Everyone is tightening but the weakest are tightening the most. We are seeing the results in the streets.

That much we can observe. How we filter the mass of information coming out of Europe depends on our mental model. Some people focus on the economic projections, looking at when growth might resume, the scale of wage cuts needed to make the fringe countries competitive again, and so on.

Others look at the money: how much debt has Greece accumulated, the interest on that debt, and how it might be repaid, or rather not repaid. But if you look to economic history to seek parallels there seem to me to be two that sort of fit the story.

One is the break-up of the Bretton Woods fixed exchange-rate system, which ran from the end of the Second World War through to 1972. Those of us who were taught our economics in the 1960s will recall that while there was a huge amount of work done on the weaknesses of the system, there was no real acceptance that it might come to an end. The alternative of floating exchange rates was seen as a recipe for chaos, which in a way proved to be the case in the 1970s. However, despite the flaws in the fixed exchange-rate system, it took several years to die. If you take as a starting point the sterling devaluation in 1967, it was about five years.

The other parallel is more relevant to the events of the past few days. It is Britain's "winter of discontent" of 1978-79. The protests and disruption continued through the 1980s but it took the experiences of that winter to convince a majority of the population that we could not go on like this. We had already had the experience of Edward Heath's three-day week (the joke in the German newspapers was that "now you British can only strike for three days a week") and the IMF bailout of 1976. But before that winter there was not the critical mass in the country to demand change.

No parallel is a perfect fit. In the run-up to the UK's IMF bailout there was a lot of hostility to the world's banking community – the "gnomes of Zurich" – but not to Europe as such. In the three bailouts so far, of Greece, Portugal and Ireland, hostility has been focused on the bankers, as you might expect, but also on the European authorities and, in Greece particularly, on Germany.

Some of us think that it is monstrously unfair to single out the one country that has followed its own advice and scrunched down costs and consumption to make itself competitive. It is also unwise, since German taxpayers are, one way or another, underwriting the whole eurozone project. When Spain gets its formal bailout, presumably very soon, it will be interesting to see how the blame is distributed.

Apply these two parallels to what is happening now, and what might this tell us about the future? The first thing to be said is that we are not yet at any sort of turning point. As far as the Bretton Woods experience is concerned we are still in the 1960s. We can see the weaknesses of the design but the majority view is both that these can be fixed and that the consequences of a break-up are so serious that they don't really bear thinking about. Some of us disagree with that and think the costs of keeping the system going are almost certainly greater than the costs of change, but that is not a majority view.

As far as winter of discontent parallel is concerned, I think most of southern Europe is still very much where we were in the mid-1970s. Of course, the situation varies from country to country, with things more advanced in Greece than in Spain, still more so than in Italy. But even in Greece the professional elite, now dubbed technocrats, is still in control. No one can hope to predict the event or events that will crystallise change. Nor can we see to what extent change in one country will feed into another. Street protests can carry on for a while and there may need to be some external event to transform protest into policy action.

My own guess is that sullen acceptance will be the norm for some time yet – maybe years. So the notion of a lost decade may prove right. But it is not a lost decade for northern and eastern Europe. The German boom is slowing but there is the prospect of sustained growth. Sweden has got its public debt down below 40 per cent of GDP and is running a surplus. Parts of eastern Europe are managing an astounding recovery: Estonia has become the fastest-growing European economy.

So, we should not be too gloomy about the future of Europe as a whole, notwithstanding the protests in parts of it now.

Start your day with The Independent, sign up for daily news emails
Voices
Lucerne’s Hotel Château Gütsch, one of the lots in our Homeless Veterans appeal charity auction
charity appeal
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
tv
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Sport
Scunthorpe goalkeeper Sam Slocombe (left) is congratulated by winning penalty taker Miguel Llera (right)
football
PROMOTED VIDEO
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
News
ebooksNow available in paperback
Arts and Entertainment
Jennifer Saunders stars as Miss Windsor, Dennis's hysterical French teacher
filmJennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress
Life and Style
tech
Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
Voices
Jimmy Mubenga died after being restrained on an aircraft by G4S escorts
voicesJonathan Cox: Tragedy of Jimmy Mubenga highlights lack of dignity shown to migrants
Life and Style
Sebastian Siemiatkowski is the 33-year-old co-founder and CEO of Klarna, which provides a simple way for people to buy things online
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Carlton Senior Appointments: Sr Wealth Manager - San Francisco - Inv AdvisoryFirm

$125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager – In...

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

'No abs Adam' plans to muscle in on Usain Bolt's turf

After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum