Likewise, Spain’s debt ratio should have fallen from 71% to 69%, but will probably increase to 99%. Greece’s debt ratio will rise from 170% to 177% (despite a 58-percentage-point debt-relief scheme in 2012), Portugal’s will surge from 108% to 127%, and France’s will rise from 86% to 96%. But, instead of ruefully admitting their failures, the governments in question are now going on the offensive by rejecting austerity categorically.
Italy’s new prime minister, Matteo Renzi, came to power on that platform. Greek Prime Minister Antonis Samaras is trying to counter his leftist rival Alexis Tsipras in the same way. Portugal’s Constitutional Court has thwarted the country’s fiscal-consolidation efforts. And France’s new prime minister, Manuel Valls, is also moving against austerity. Supposedly, everyone just wants more growth; unfortunately, when politicians talk about growth, what they usually mean is that they should be permitted to incur more public debt.
An increase in public debt causes a short-term surge in demand, helping to increase the degree of capacity utilization and keep unemployment in check. However, new debt is nothing but a form of dope, reducing pressure to take painful measures that would improve competitiveness and capacity growth.
This renewed decline in debt discipline reflects the socialization of potential bankruptcy costs among all eurozone countries by way of establishing joint-liability mechanisms. It is this de facto debt mutualization that has prompted creditors to accept lower interest rates, and it is only lower interest rates that have permitted Renzi, Samaras, Valls, and the others to distance themselves from austerity policies.
There is nothing surprising about this: When a decision-maker can claim full credit for a policy’s benefits and collectivize the costs, he will pursue the policy sooner, more quickly, and to a larger extent than he would if he had to bear the costs alone. What is remarkable is how matter-of-factly Europe’s transgressors succee