At the heart of the euro crisis has been a culture war, played out within states as well as between them. This culture war has now reached a decisive phase. Over the coming weeks and months, the outcome will become clear and the consequences could be far-reaching.
The division is between a private-sector culture which believes that sustainable growth depends on exports and investment and therefore emphasizes policies to deliver open and competitive markets and flexible workforces; and a public-sector and trade-union culture which believes growth depends on putting more money in people's pockets and so favors Keynesian demand-side policies to boost government spending and encourage borrowing, and to protect jobs and raise wages. (...)
(...)Both cultures exist within every country. But it is striking that those countries where the private-sector culture is dominant are currently delivering the strongest growth.
Ireland, for example, is enjoying a remarkable recovery: Its economy is forecast to grow 1.7% this year and 3% next year, and bank lending and house prices are now rising again. Similarly, the U.K. is likely to grow by 3.1% this year and unemployment has fallen to 6.8%. Germany's impressive performance over the past five years reflects tough reforms of public spending and the labor market in the previous decade. The Baltic states are delivering strong growth. (...)
(...) But it is too soon to declare the triumph of the supply-siders; there are signs of reform fatigue in many countries and recent events show the public-sector culture is fighting back. (...)
(...)Take Portugal, where the Constitutional Court last week sided with the opposition to again frustrate the government's efforts to cut the cost of public administration, suggesting taxes should rise instead. European Union officials fear that this risks descending into a damaging standoff that could lead to political instability just as Portugal is exiting its bailout program.
The New York Times - 8-10-2014
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