Wednesday, April 1, 2009

Highway To Hell

What do you do if your neo-Hooverite policies get you booted from office? If you're ex-Czech Prime Minister Mirek Topolanek, you take some inspiration from AC/DC, and claim Keynsian fiscal policy is a "road to hell". From the New York Times:
“AC/DC played here last week,” Mr. Topolanek told the daily LidovĂ© Noviny. “And their cult song ‘Highway to Hell’ might have led me in that very improvised speech to use the phrase ‘road to hell’.” According to the Czech newspaper, Mr. Topolanek’s prepared remarks included the less resonant phrase “the way to destruction.”
On a more serious note, Prime Minister Topolanek's evocation of Keynsian as a road to perdition speaks to the reticence of many European countries to run up more debt when their debt-to-GDP ratios are at generally higher starting points than the United States. But if this slump persists and European governments stick to their fiscal austerity, the crisis could take on a new political dimension, with governments falling, and perhaps resorting to protectionist measures. As Ambrose Evans-Pritchard reports
the Czech crisis has unnerved investors even more because the country has been seen as a rock of stability. It kept a tight rein on credit and avoided the stampede into euro and Swiss franc mortgages that occurred in other parts of Eastern Europe.

The fate of premier Mirek Topolanek – toppled in the middle of the Czech Republic's EU presidency – shows how fast the crisis is moving from finance into the core economy. Czech industrial output fell 23pc in January as car plants moth-balled production lines.

"This is the next leg of the crisis," said Neil Shearing from Capital Economics. "We're seeing the political backlash as this spreads into the labour market. The risk is that we will see a move to populist nationalism in some countries. That could prove dangerous."

So far we have not seen the type of rabidly nationalistic or xenophobic extremist parties gain power in Eastern Europe as did in interwar Europe during the Great Depression. Hopefully, we will be wise enough to avoid repeating that chapter in history.

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