At the WSJ Donald Luskin and Lorcan Kelly “fantasize” on “Europe´s supply-side revolution”:
Skeptics point to Germany’s success not as proof that Europe can grow, but as a reason why it can’t. They worry about the imbalances of German competitiveness versus the large southern economies of Italy and Spain. They argue that the euro—the common currency of Europe—rules out devaluation by less competitive nations, which they hold out as the surest path to rebalancing.
But this is the blessing of the euro, not its curse. The common currency prevents politicians from fantasizing that they can devalue—and inflate—their way to prosperity. Instead, as Italy’s new prime minister, Mario Monti, put it, growth “will have to come from structural reforms or supply-side measures.”
Hum, but I had the impression that that´s exactly what FDR did in March 1933 when he devalued the dollar through delinking from gold. “Prosperity” was immediate. Industrial output in the next four months went up by over 50% and prices immediately reversed course, with consumer price deflation becoming subdued inflation!
Structural or supply-side measures to improve long term growth can always be found, especially so in Europe. But the immediate problem, like in the US, was a dramatic drop in aggregate demand.
And they conclude saying:
In the 1970s, conventional wisdom held that the U.S. couldn’t compete against Japan and, yes, Europe. But fear clarified our minds, and the supply-side revolution we dared to undertake in the 1980s restored America’s growth and competitiveness. Conventional wisdom today holds that Europe is doomed. To the contrary. It is, bravely, starting its own supply-side revolution.
Conveniently forgeting the stability backdrop – nominal spending growing on an even keel – that allowed structural reforms to be not only implemented but also successful!