Clearly the wheels are starting to come off Europe's austerity train, as German Finance Minister Wolfgang Schaeuble unveils a bilateral investment plan for Spain later today and Italy declares a change of course. And suddenly, I have some sympathy for Germany's austerians.
Germany's policy for fixing the euro area's debt crisis has been wrong -- especially in terms of its own tight fiscal stance, as Megan Greene writes on Bloomberg View today. Yet, as so often, finding the right alternative to replace a failed policy won't be easy. To get an idea of what there is to be afraid of, just look at the document from France's Socialist Party that leaked late last week.
According to the document as reported by the Financial Times and others, France's ruling party sees the austerity debate as a Europe-wide battle between the right (represented by a "selfish" German Chancellor Angela Merkel, and a "Thatcherite" anti-European U.K. Prime Minister David Cameron), and the noble and pro-European left.
The document may have upset Schaeuble; at least that's one possible explanation for the bluntness of his comment that Germans "are not bureaucratic; we are not stupid." France's government has sought to dilute the party document's language and takes a less extreme view. Yet the fundamental approach remains the same.
This approach says that austerity is the problem and government spending will fix it. Countries such as France and Italy have barely tinkered at the edges of the structural reforms that are needed to eliminate the problems that led to their debt crisis. The French Socialist Party document indicates a deep desire to believe that those reforms aren't necessary and are part of the wider Thatcherite-Merkelian austerity conspiracy. All that's required to return to healthy growth, in this view, is to raise more taxes from the rich, control the banks, and loosen government purse strings.
That combination of policies would be disastrous. The French economy isn't failing because of a collapsed banking sector or burst property bubble that suddenly doubled the country's debt burden. That's what happened in the U.K., Ireland and Spain, which are paying the price for their unbalanced economies. France is failing because the country's tax structure and labor-market laws, among other things, have made the French economy uncompetitive.
Reflating France without conducting significant structural reforms would merely dig a deeper financial hole for the medium term. If Germany agreed to euro-area-wide funding for that reflation, Germans would, in the long run, probably have to pick up the bill.
No wonder Schaeuble chose a bilateral route to edge away from austerity. This way he can pick which governments to help, when and by how much. I suspect he chose Spain because, unlike in France, the Spanish government really is trying to restructure its economy to create a business strategy that will work. It will be interesting to see how he phrases his choices later today.
Of course, whether Schaeuble's investment package for Spain will be sufficient to reverse the Spanish economy's downward spiral; whether cherry-picking countries to help is good for Europe or Germany's place in it; and whether ad hoc policies, without a banking union and other changes needed to underpin the euro area can create enough certainty to revive investment on a large scale are different questions altogether.
Still, I agree with Schaeuble -- Germany isn't stupid. I'm not so sure about the people who drafted the French Socialist Party document.
(Marc Champion is a member of Bloomberg View's editorial board. Follow him on Twitter.)