South By North Strategies, Ltd.

Robert Skidelsky is pessimistic about the outcome to the austerity wars.

We can learn from the experience of the 1930’s. A rising tide lifts all boats; a receding one ignites a Hobbesian war of each against all.
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This brings us back to the premature withdrawal of fiscal stimulus. With aggregate demand depressed in Europe and the US, governments turn naturally to export markets to relieve unemployment at home. But all countries cannot simultaneously run trade surpluses. The attempt to achieve them is bound to lead to competitive currency depreciation and protectionism.
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As Keynes wisely remarked, “If nations can learn to provide themselves with full employment by their domestic policy…there would no longer be a pressing motive why one country need force its wares on another or repulse the offerings of its neighbor.” Trade between countries “would cease to be what it is, namely a desperate expedient to maintain employment at home by forcing sales on foreign markets and restricting purchases.” It would become, instead, “a willing and unimpeded exchange of goods and services in conditions of mutual advantage.”
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In other words, today’s turmoil over currencies and trade is a direct result of our failure to solve our employment problem.