Krugman urges State to ease austerity

One of America’s foremost economists has castigated the Government’s relentless austerity and said the operation of the euro is being run solely in the interests of Germany, to the detriment of Europe.

Nobel laureate Paul Krugman said the Government should be trying to argue its case more forcefully with its EU partners and should protest more at the domestic economic depression wrought by the austerity programme.

“What is shockingly absent is a coalition of the debtors to say ‘look we are doing our best but you have to cut us some slack’,” said Krugman.

“The euro is a straitjacket so there is only limited room for manoeuvre, but even a little bit of relaxation can mean a little less awful life for hundreds of thousands of people.

“A situation in which the euro is run solely in the interests of Germany is a situation that is going to get much worse. A euro that was to be a path to European unity is going to be a path towards a very divided continent that feels abused by the core.”

Speaking yesterday on RTÉ radio’s Morning Ireland, the winner of the Nobel Memorial Prize in Economic Sciences said too many European politicians think of the economic crisis as a “morality play: You’ve sinned and, therefore, you must be punished”.

But, he said, “making people suffer” is not the way to achieve economic recovery. “This shows an inability to accept that, really, it is everybody’s fault and nobody’s fault and, in any case, making people suffer is not helping the cause of recovery.”

Krugman, who was in Dublin to receive the James Joyce Award for economics, argued that Europe-wide austerity and deflation has made Ireland’s debt problem worse.

“Having society-destroying austerity in Ireland, Spain and Greece with belt-tightening in Germany and excessively cautious policy until very late in the game at the ECB is the worst of all worlds.

Krugman agreed it was very difficult for the Government of a eurozone country to ease off on austerity “unless Brussels and Frankfurt agree”.