Sunday, 5 May 2013

Krugman doesn't know the half of it

Mario Draghi is as ambiguous a figure as a public executioner can be. A strange thing to say, since unlike most executioners he doesn't wear a mask: but unlike most executioners, he has the power to stay the execution even as he carries it out. He kills you with one hand and saves you with the other.

If it were not for Mario Draghi, Spain would probably, by now, be subject to a bailout: it is only his implicit guarantee of support that has brought down the cost of government borrowing to the point where it is almost sustainable. On the other hand, Mario Draghi has exacted a price for this: and the price, in cuts and the devastation that they cause, keeps Spain in a desperate position and one from which it cannot escape.

Perhaps the metaphor of the executioner is the wrong one. Perhaps a better one is the man who catches someone who is falling, but will not pull them up. Hence their survival depends entirely on the catcher - and in saying and doing exactly what he wants.

Krugman, who one reads in much the same spirit as one might take an antidote to poison, wrote on Friday, in passing, about Draghi. The occasion was a press conference in Bratislava in which Draghi announced the lowering of the ECB's interest rate, on the one hand (saved!) and called for more cuts and fewer tax increases (killed!) on the other.

Watching this on the following morning's news bulletin I was distracted from precisely what Draghi was saying firstly by the sight of Olli Rehn, as wicked and stupid a man as holds power anywhere in Europe, and secondly by the sight of my stepmother, a wicked and stupid woman, sitting on Olli Rehn's right. But I caught up later on with what Draghi had been saying: firstly in the Spanish press and later when I took my shot of Krugman. Cut more, says Mario. Taxes are too high: what you need to do is cut.
Unfortunately, many of the fiscal consolidation measures were implemented in an emergency situation, with most governments choosing the simplest route, which was to raise taxes. And here we are talking about raising taxes in an area of the world where taxes are already very high, so it is no wonder that this had a contractionary effect. However, now that there is more time, there could be a shift towards reducing current government expenditure and lowering taxes.
You would think, from this, that there had been no cuts, that governments in Spain or Italy or elsewhere had simply raised taxes ("most governments choosing the simplest route, which was to raise taxes") rather than cut. Draghi must know that this is not true.

Nobody says this to him in the press conference, which is worth reading, if not worth going out of your way to read: not because Draghi has anything very interesting to say, but because the questions asked him are so gentle, so over-courteous, that one can easily understand how the Rehns and Draghis are able to live in a bubble where they are managing the crisis as well as they can and the problem is that governments have scarcely cut at all.

Perhaps it is not the done thing to cry out Mr Draghi, what are you talking about, half of Southern Europe is a disaster area. But as it is, the Rehns and Draghis are not even in the position of Great War generals who kept to the same course while hundreds of thousands were dying. They're generals who keep to the same course and do not even understand that there are casualties.

So, Draghi didn't say anything that interesting, as a man who is asked nothing interesting might very well not. But Krugman was interested enough to ask what Draghi was implying, as well as what he was saying outright, and detect an implict threat - that he wasn't just saying to cut spending rather than increase taxes, but to do so or else. Draghi, says Krugman,
is inserting himself into domestic policy in a way that he really shouldn't.
Indeed he is. But Krugman doesn't know the half of it. It isn't implict at all. Because the last time Draghi took it on himself to give a lecture on cutting spending rather than raising taxes, he inserted himself into Spanish domestic policy literally. He came to Madrid and addressed the Congress of Deputies personally. Personally and secretly. In a closed hearing. A closed session of an independent country's parliament.

Perhaps that is why journalists express no outrage. Because they are allowed, for a few minutes, to sit in front of Mario Draghi and ask questions. They are. But the Spanish people are not. So nobody will ask Mr Draghi, when were you crowned king of Europe, when were you appointed God?. Because nobody is king, or God, if you can ask them questions. And nobody is your executioner, when it is not you hanging by their highly-conditional thread.