PERHAPS the worst element of yesterday’s proposals to rescue the Eurozone was the attempt to rebrand the exercise as a new Marshall Plan for Greece. It is the kind of propagandistic nonsense that would have made George Orwell’s Ministry of Truth proud. The Marshall Plan was intended to help Western Europe survive the post-Second World War era and rebuild its destroyed, ravaged infrastructure. While it was also offered to Soviet-controlled countries (and rejected by them), its real aim was to prevent impoverished Europeans from turning to communism.
There are absolutely no parallels between that and what is happening to Greece, a country that has already long been hooked to subsidies but that has made no proper effort to put its own house in order. The two situations are incomparable; what we are seeing here is window-dressing, a large bailout, a move towards further fiscal unification through the back door and a partial, much-needed but small “selective default”.
In truth, it is debatable whether the Marshall Plan really achieved much; while most academics hold it up as one of the few truly successful foreign aid programmes in history, other commentators (including myself) are more sceptical. What really transformed Germany from disaster zone to economic miracle were the heroic actions of Ludwig Erhard, at the time a little-known West German official. He took over a special economic department in 1947; the following year, he became the director of economics of the Bizonal Economic Council, a position he used to push through a radical free-market and sound money agenda. Over one weekend, he abolished all price and wage controls, freeing the economy at a stroke; and he introduced the Deutsche Mark in June 1948. This halted Germany’s post-war stagnation and kick-started a dramatic economic recovery that lasted three decades. His policies – not those of the Marshall Plan – deserve to be copied today.
It is a tragedy that Europe’s (and especially Italy and Spain’s) problem won’t be addressed by yesterday’s plan – but it is an even greater disaster that its growth problem won’t be tackled either. There is no latter day European or Greek Erhard, as the latest figures demonstrate yet again. As the Engineering Employers’ Federation points out, the latest manufacturing purchasing managers’ survey numbers are grim for the Eurozone. Although Germany and France saw growth, output fell for the second successive month for the rest of the region. Even growth in France and Germany was the slowest rate since the recession ended – so on top of a two-speed Europe, which is making the region even less of an optimal currency area than it previously was, the overall rate of expansion is slowing.
Ultimately, the weaker EU countries need to sort out their economies and bring their costs back into line. They cannot do this artificially by devaluing as they are part of the single currency. So they need to undergo years of pay restraint, cost-cutting and pain. There is still no sign that they are prepared to do this, unlike Germany, which has spent the last couple of decades since reunification tightening its belt and is only now reaping the rewards.
The markets were pacified yesterday, but it won’t last. Europe’s sovereign debt crisis has merely been postponed.
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