So we are left with a combination of the first three options, also known as “policies to restore European growth” — a phrase that appears in every international communique.
However, the communiques never get more specific. Europe’s technocrats understand what adoption of “policies to restore European growth” means. So do some of Europe’s politicians. European voters do not, because politicians fear that spelling it out would be a career-limiting move.
If Europe does not adopt some combination of the first three options as policy goals over the next five years, it will face a stark choice: either lost decades for southern Europe (and perhaps northern Europe as well), or continued north-south payment imbalances that will have to be financed through fiscal transfers — that is, by taxing the north.
Northern Europe’s politicians should become more explicit about what “policies to restore European growth” actually mean. Otherwise, 10 years from now, they will be forced to confess that today’s dithering imposed enormous additional tax liabilities on northern Europe. That might turn out to be the ultimate career bummer.
J. Bradford DeLong, a former deputy assistant secretary of the US Treasury, is professor of economics at the University of California, Berkeley, and a research associate at the US National Bureau for Economic Research.
Copyright: Project Syndicate