UOBSERVER / BRUSSELS - Nobel-prize-winning economist Paul Krugman told Brussels on Tuesday (17 March) that the European Union is not spending enough on its fiscal stimulus programmes.
Where the EU committed €200 billion in a recovery plan last year, Mr Krugman said Brussels in fact needs to spend around €500 billion this year and up to a trillion in total over the next three years to get the economy going again.
"My back of the envelope math says on both sides of the Atlantic we should be having a stimulus that peaks at four percent of GDP annually," he told reporters after meeting with industry commissioner Guenter Verheugen.
The American economist said both the EU and the US were under-spending, with the US plan amounting to about 2.5 percent of GDP and the EU plan weighing in at around 1.5 percent of GDP.
The European Commission disputed Mr Krugman's analysis, saying that once Europe's more generous welfare expenditures - or "automatic stabilisers" - are taken into account, Europe's total stimulus represented around 3.3 percent of GDP.
"We think it's a little bit too early to make judgment whether the stimulus packages we have enacted will work," said Mr Verheugen at the same press conference.
"I don't see that a second stimulus package will be prepared. I just don't see any room."
Commission spokesperson Johanes Laitenberger later told reporters that much of the announced European stimulus had yet to be implemented and that any assessment of whether the package has worked should wait until the monies have been spent.
Mr Krugman conceded that in Europe "there will be less sheer misery than in the US," but added "that said, I'm disappointed even with the Obama administration's plan."
"I'm not holding up the US as a role model," he continued.
He said that Washington should be committing slightly more than the EU, around €600 billion this year.
Calling both stimulus plans "inadequate", the economist, who is also a columnist for the New York Times, said: "The US stimulus package is $800 billion (€616 billion) over three years. It should be $1.2-$1.3 trillion (€924 billion - €1 trillion) and the Europeans should be doing the same thing."
Instead, he said, "We are all following the pattern of Japan in the 1990s."
In recent days, a minor breach has opened up across the Atlantic, with the United States arguing that more stimulus is needed, and France and Germany saying publicly that they feel that enough has been spent. The two European powers want the focus for the upcoming G20 meeting in London to tackle the crisis should instead be on tougher international regulation of the financial sector.
European leaders are afraid that the public spending will result in substantially higher inflation rates in the coming years.
Mr Krugman said that on the contrary, Europe is facing the likelihood of deflation. "[European Central Bank chief] Mr Trichet is still saying there is no risk of deflation in Europe, which I think is weirdly complacent," he later said at a seminar in the European capital.
The nobel laureate blamed the lack of a centralised political and economic authority for the situation in Europe.
"Europe has a real problem. There is no central authority," he said. "It would be really helpful right now if Brussels had more authority."
Mr Krugman, a supporter of the US Democratic Party, called upon the ghost of British interventionist economist John Maynard Keynes to inspire Europe.
"Keynes is our best guide to what's going on. Reading his books seems to be a more accurate description of current events compared to that of many of today's economists."
Source: www.unobserver.com
Post a Comment