In a piece about European countries adopting austerity measures in response to the Greek financial crisis, the New York Times (5/26/10) acknowledges that some people think this is a terrible idea:
In most European capitals, the case for fiscal rectitude is now trumping fears that pulling away those props will hobble the fragile recovery. The voices opposing the budgetary turnaround come from unions and some opposition parties, like Labour in Britain and the Socialists in France, as well as some analysts.
"The euro area is adopting the wrong policy at the wrong moment and is thus making people suffer, which could lead to nationalistic reactions," said Jean-Paul Fitoussi, a professor of economics….
But then comes the silver lining:
But other economists stressed that there was a way out…. In a recent research report on the euro area, economists at Deutsche Bank, led by Thomas Mayer, said that euro area countries "can learn some valuable lessons from the Baltics' experience over recent quarters." Those countries survived drastic budget consolidation without devaluing their currencies.
"Restoration of competitiveness and weighty fiscal consolidation in the absence of currency adjustment is difficult but doable," they said, "as long as politicians and the general public are willing to accept some upfront pain in return to longer-term gains."
What the Times doesn't say about the "valuable lessons from the Baltics' experience": Estonia's GDP has contracted by almost one-fifth, while Latvia's has shrunk by more than one-quarter. Both nations have unemployment now in the vicinity of 20 percent.
What about those "longer-term gains"? Well, Estonia–which is in considerably better shape than Latvia–is expected to have a lower standard of living in 2015 than it did in 2007 (Guardian, 4/28/10). The Times seems to have been so caught up in the excitement over the Baltic nations not devaluing their currency that it forgot to mention the horrendous human cost of this dubious accomplishment.