Eurozone growth shock horror

Bill Emmott, former editor of The Economist, grabbed a chunk of The Times op-ed page today to argue that the coming economic recovery will provide a vindication of Thatcherism. According to Bill, it is the more liberal and flexible economies, like the US and Britain, that will benefit the most from the upturn.

Oops. Within hours of The Times hitting the news stands, both Germany and France reported GDP growth of 0.3% in the second quarter of the year, a period in which liberal Britain and flexible US both recorded further falls in output. Both France and Germany saw higher personal consumption, partly in response to car scrappage schemes, as well as improvements in the construction sector.

It will be a long time before anyone can write a definitive account of how the recession unfolded, let alone assess the effectiveness of the fiscal and economic policy measures taken in various countries. Who knows, Bill Emmott's view may even turn out to be accurate in the long run, which is why I'm getting my jeering in now.

That said, I think it's already possible to venture a few thoughts on the relative stances of various central banks. The Fed has been widely praised for its prompt response to the crisis; the Bank of England rather less so. But both must bear responsibility for fostering their countries' debt-financed consumption booms in the first place, through excessively easy monetary policy. In contrast, the ECB (and my other favourite, the RBA) largely ignored pleadings to keep feeding the beast by cutting rates.

As we may now be seeing, it's easier to boost your economy when stimulus is really needed if you haven't already shot your bolt. For overborrowed consumers in the US and the UK, the instinctive first response to emergency cuts in interest rates has been to increase savings and start paying down debt, which is the exact opposite of what the economies need. In countries like France and Germany, where the consumer wasn't tapped out in the first place, stimulus can be much more effective. The steady-as-she-goes approach of the ECB, much ridiculed by Anglo-Saxon commentators during the go-go years, suddenly seems a lot smarter than the trigger-happy lurching around of the Fed and the Bank of England.

Interestingly, I heard an animated debate on CNBC earlier this week about the fate of Fed Chairman Bernanke, whose term expires fairly soon. There seem to be a lot of people gunning for him: supposedly, opinion polls show that Americans distrust the Fed even more than they distrust the IRS. Good old Larry ("who ate all the pies and all the pizzas?") Summers was one of the names mooted as a replacement. I think this would be unfair on Bernanke, who is a student of the Great Depression and whose actions once the crisis broke were massive and effective. I'd have been much more inclined to fire his predecessor -- any time after 1998, basically -- but it's too late for that.