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Greece, without its own currency, didn’t have that option.

the ruling leftist coalition, was willing to accept the austerity that has already been imposed. All it asked for was, in effect, a standstill on further austerity.

But the troika was having none of it. It’s easy to get lost in the details, but the essential point now is that Greece has been presented with a take-it-or-leave-it offer that is effectively indistinguishable from the policies of the past five years.

The purpose must therefore be to drive him from office, which will probably happen if Greek voters fear confrontation with the troika enough to vote yes next week.

But they shouldn’t, for three reasons. First, we now know that ever-harsher austerity is a dead end: after five years Greece is in worse shape than ever. Second, much and perhaps most of the feared chaos from Grexit has already happened. With banks closed and capital controls imposed, there’s not that much more damage to be done.

Finally, acceding to the troika’s ultimatum would represent the final abandonment of any pretense of Greek independence.

it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.

Hooray for Obamacare JUN 25

At this point, however, the evidence practically screams hysteresis

The idea that policies that depress the economy in the short run also inflict lasting damage is generally referred to as “hysteresis.” It’s an idea with an impressive pedigree: The case for hysteresis was made in a well-known 1986 paper by Olivier Blanchard, who later became the chief economist at the International Monetary Fund, and Lawrence Summers, who served as a top official in both the Clinton and the Obama administrations

there’s growing evidence that we critics actually underestimated just how destructive the turn to austerity would be. Specifically, it now looks as if austerity policies didn’t just impose short-term losses of jobs and output, but they also crippled long-run growt

In 2010, more or less suddenly, the policy elite on both sides of the Atlantic decided to stop worrying about unemployment and start worrying about budget deficits instead.

Then it all went wrong. And the consequences of the wrong turn we took look worse now than the harshest critics of conventional wisdom ever imagined.

When economic crisis struck in 2008, policy makers by and large did the right thing. The Federal Reserve and other central banks realized that supporting the financial system took priority over conventional notions of monetary prudence. The Obama administration and its counterparts realized that in a slumping economy budget deficits were helpful, not harmful. And the money-printing and borrowing worked: A repeat of the Great Depression, which seemed all too possible at the time, was avoided.

The answer is that an economy is not like an indebted family. Our debt is mostly money we owe to each other; even more important, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income.

So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone’s income falls — my income falls because you’re spending less, and your income falls because I’m spending less. And, as our incomes plunge, our debt problem gets worse, not better.

these assertions often go along with claims that the economic crisis itself demonstrates the need to shrink government. But that’s manifestly not true. Look at the countries in Europe that have weathered the storm best, and near the top of the list you’ll find big-government nations like Sweden and Austria.

there’s a clear moral to this story: When the private sector is frantically trying to pay down debt, the public sector should do the opposite, spending when the private sector can’t or won’t. By all means, let’s balance our budget once the economy has recovered — but not now. The boom, not the slump, is the right time for austerity.

when you push “austerians” on the badness of their metaphor, they almost always retreat to assertions along the lines of: “But it’s essential that we shrink the size of the state.”

The great American economist Irving Fisher explained it all the way back in 1933, summarizing what he called “debt deflation” with the pithy slogan “the more the debtors pay, the more they owe.

So the austerity drive in Britain isn’t really about debt and deficits at all; it’s about using deficit panic as an excuse to dismantle social programs. And this is, of course, exactly the same thing that has been happening in America.

The big question here is whether the evident failure of austerity to produce an economic recovery will lead to a “Plan B.” Maybe. But my guess is that even if such a plan is announced, it won’t amount to much. For economic recovery was never the point; the drive for austerity was about using the crisis, not solving it. And it still is.

Economic gains have still left 30.9 percent of Latvia’s population “severely materially deprived,” according to 2011 data released in December by Eurostat, the European Union’s statistics agency, second only to Bulgaria. Unemployment has fallen from more than 20 percent in early 2010, but was still 14.2 percent in the third quarter of 2012

“I’m always asking people here, ‘How can you put up with this?’ ” said Juris Calitis, a Latvian-born Anglican chaplain whose family fled Soviet occupation in the 1940s and who returned when the Soviet empire crumbled. “It is really shocking,” added Mr. Calitis, who runs a soup kitchen at his church in Riga’s old town. Latvians, he said, “should be shouting in the streets,” but “there is an acceptance of hard knocks.”

In contrast to much of Europe, Latvia today has no tradition of labor activism. “What can you achieve in the street? It is cold and snowing,” said Peteris Krigers, president of the Free Trade Union Confederation of Latvia. Organizing strikes, he said, is nearly impossible. “It is seen as shameful for people who earn any salary, no matter how small, to go on strike.”

Also largely absent are the leftist political forces that have opposed austerity elsewhere in Europe, or the rigid labor laws that protect job security and wage levels. In the second half of 2010, after less than 18 months of painful austerity, Latvia’s economy began to grow again.

Since 2008, Latvia has lost more than 5 percent of its population, mostly young people, to emigration. The recent exodus peaked in 2010, when 42,263 people moved abroad, a huge number in a country of just two million now, according to Mihails Hazans, a professor at the University of Latvia.

Alf Vanags, director of the Baltic International Center for Economic Policy Studies here, is skeptical. “The idea of a Latvian ‘success story’ is ridiculous,” he said. “Latvia is not a model for anybody.”

A better and more equitable way out of Latvia’s troubles, he believes, would have been a devaluation of the currency, an option closed to Greece and 16 other countries that use the euro. Latvia kept its currency pegged to the euro, putting itself in much the same straitjacket as euro zone nations.

“You can only do this in a country that is willing to take serious pain for some time and has a dramatic flexibility in the labor market,” he said. “The lesson of what Latvia has done is that there is no lesson.”

The picture in the eurozone is worse: its economy expanded by 2 percent between 2009 and 2010. It is now forecast to expand by a mere 0.4 percent between 2010 and 2013. Austerity has put the crisis-hit countries through a wringer, with huge and ongoing recessions. Rates of unemployment are more than a quarter of the labor force in Greece and Spain (see figure 2).

it did not have to be this way.1. The creditor countries, particularly Germany, could have recognized that they were enjoying incredibly low interest rates on their own public debt partly because of the crises in the vulnerable countries. They could have shared some of this windfall they enjoyed with those under pressure. 2. The needed adjustment could have been made far more symmetrical, with strong action in creditor countries to expand demand. 3. The European Central Bank could have offered two years earlier the kind of open-ended support for debt of hard-pressed countries that it made available in the summer of 2012. 4. The funds made available to cushion the crisis could have been substantially larger. 5. The emphasis could then have been more on structural reforms, such as easing labor regulations and union protections that restrain hiring and firing and raise labor costs, and less on fiscal retrenchment in the form of reduced spending. Reduced labor costs could have made these nations’ export industries more competitive and encouraged domestic hiring.

back in America we haven’t had an official, declared policy of fiscal austerity — but we’ve nonetheless had plenty of austerity in practice, thanks to the federal sequester and sharp cuts by state and local governments. The good news is that we, too, seem to have stopped tightening the screws: Public spending isn’t surging, but at least it has stopped falling. And the economy is doing much better as a result. We are finally starting to see the kind of growth, in employment and G.D.P., that we should have been seeing all along — and the public’s mood is rapidly improving.

You know the spiel: that the U.S. economy is ailing because Obamacare is a job-killer and the president is a redistributionist, that Mr. Obama’s anti-business speeches (he hasn’t actually made any, but never mind) have hurt entrepreneurs’ feelings, inducing them to take their marbles and go home.

The truth is that the private sector has done surprisingly well under Mr. Obama, adding 6.7 million jobs since he took office, compared with just 3.1 million at this point under President George W. Bush. Corporate profits have soared, as have stock prices. What held us back was unprecedented public-sector austerity: At this point in the Bush years, government employment was up by 1.2 million, but under Mr. Obama it’s down by 600,000. Sure enough, now that this de facto austerity is easing, the economy is perking up.

By all means let’s try to reduce deficits and bring down government indebtedness once normal conditions return and the economy is no longer depressed. But right now we’re still dealing with the aftermath of a once-in-three-generations financial crisis. This is no time for austerity.

just look at the predictions the two sides in this debate have made. People like me predicted right from the start that large budget deficits would have little effect on interest rates, that large-scale “money printing” by the Fed (not a good description of actual Fed policy, but never mind) wouldn’t be inflationary, that austerity policies would lead to terrible economic downturns. The other side jeered, insisting that interest rates would skyrocket and that austerity would actually lead to economic expansion. Ask bond traders, or the suffering populations of Spain, Portugal and so on, how it actually turned out.

at the street level in Greece, there is little debate anymore, if there ever was. The images of suffering here have not been that different from the grainy black and white photos of the United States in the 1930s. Suicides have shot up. Cars sit abandoned in the streets. People sift garbage looking for food.

But the failures have been striking, leaving millions of Greeks baffled and angry as their lives disintegrated while the elite often escaped, untaxed and unbothered,

Even if more recent optimistic projections are to be believed, and a steady rate of growth can be expected, it would take Greece perhaps 15 years to regain the jobs it has lost,

Now, Greece is no longer spending far more than it receives, when debt payments are excluded, its officials say. It has remained in the European Union, and can again borrow in the bond markets, t

“The mix was not right,” Mr. Liargovas said of the austerity measures. “It was a cure that has almost killed the patient.”

In a wide-ranging review of the Greece program last year, the I.M.F. found that many of its predictions had failed. There was a sharp fall in imports, but little gain in exports. Public debt overshot original predictions. Predicted revenues from selling public assets were way off. The banking system, perceived as relatively sound at the beginning of the bailout, began having problems as the economy soured.

the I.M.F. concluded that many errors had been made, including too much emphasis on raising taxes instead of cutting expenses. In addition, the monetary fund overestimated the ability of the government to deliver the changes it was demanding — because they were proving politically unpopular and because Greek institutions were far weaker that anyone understood.

Administering these changes would have been difficult in a country with sound institutions, but Greece’s were filled with poorly qualified political appointees and were undergoing hiring freezes and budget cuts even as they were supposed to be managing a huge overhaul: a large assortment of new taxes, the opening of closed professions and the sale of state-owned assets.

Here is an irony of austerity’s consequences. Championed as a spur to rugged individualism, it has prompted communities like Preston to intensify government’s role in economic life

Yet, in other communities contending with shortfalls, austerity has reinforced support for capitalism. Local leaders have adopted the mien of real estate magnates, using borrowed money.

Over the past two years, councils in England have raised purchases of land and buildings from 2.8 billion pounds annually (about $3.5 billion) to £4 billion (about $5 billion), according to government data. At the same time, total borrowing by English councils has risen to £10 billion, around $10.3 billion, from £4.4 billion.

the economic security of most Americans dwindled, and the legitimacy of the system was called into question. One consequence has been the rise of the far right; another is Donald Trump.

Germany insisted that the struggling countries had to practice austerity in order to restore the confidence of private financial markets. In a deep recession, even orthodox economists at the International Monetary Fund soon recognized that austerity was a perverse recipe for economic recovery.

Europe, because of Germany’s worries that these policies would lead to inflation, had no way to extend credit to struggling nations or to raise money through the sale of bonds, which would have allowed the ECB to provide debt relief or to invest in public services.

The political result was the same on both sides of the Atlantic—declining prospects for ordinary people, animus toward elites, and the rise of ultra-nationalism

Not so in Europe. Parties such as the German Social Democratic Party, the British Labour Party, and the French Socialists disgraced themselves as co-sponsors of the neoliberal formula that brought down the economy.

In nation after nation, the main opposition to the party of Davos is neofascism.

In his masterful narrative, the economic historian Adam Tooze achieves several things that no other single author has quite accomplished. Tooze has managed to explain a hugely complex global crisis in its multiple dimensions, and his book combines cogent analysis with a fascinating history of the political and economic particulars

when the collapse came, it was “a financial crisis triggered by the humdrum market for American real estate.”

the collapse reinforced the financial supremacy of Washington and New York. “Far from withering away,” he writes, “the Fed’s response gave an entirely new dimension to the global dollar.”

When the entire structure of borrowed money collapsed, the losses more than wiped out all the capital of the banking system—not just in the US but in Europe, because of the intimate interconnection (and contagion) of American and European banks. Had the authorities just stood by, Tooze writes, the collapse would have been far more severe than the Great Depression:

While insisting to Congress that the emergency response was mainly to shore up US finance, Bernanke turned the Fed into the world’s central bank. “Through so-called liquidity swap lines, the Fed licensed a hand-picked group of core central banks to issue dollar credits on demand,” Tooze writes. In other words, the Fed simply created enough dollars, running well into the trillions, to prevent the global economy from collapsing for lack of credit.

Bernanke instigated government action on an unimagined scale to prop up a private system that supposedly did not need the state

Using deposit guarantees, loans to banks, outright capital transfers, and purchases of nearly worthless securities, the Fed and the Treasury recapitalized the banking system. To camouflage what was at work, officials invented unlimited credit pipelines with disarmingly technical names.

The blandly named policy of quantitative easing, which drove interest rates down to almost zero, was a euphemism for Fed purchases of immense quantities of private and government securities.

The crisis, Tooze writes, “was a devastating blow to the complacent belief in the great moderation, a shocking overturning of the prevailing laissez-faire ideology.” And yet the ideology prevailed

In a reversal of New Deal priorities, most of the relief went to the biggest banks, while smaller banks and homeowners were allowed to go under

Banks were permitted to invent complex provisional loan “modifications” with opaque terms that favored lenders, rather than using their government subsidies to provide refinancing to reduce homeowner debts

How did a nominally center-left administration, elected during a financial crisis caused by right-wing economic ideology and policy, end up in this situation?

Turning to Europe, Tooze explores the fatal combination of Germany’s demands for austerity with the structural weakness of the ECB and the vulnerability of the euro.

Portugal or Greece now enjoyed interest rates that were only slightly higher than Germany’s, and markets failed to take account of the risk of default, which was more serious than that of devaluation.

instead of treating the Greek situation as a crisis to be contained and helping a genuinely reformist new government find its footing, Brussels and Berlin treated Greece as an object lesson in profligacy and an opportunity to insist on punitive terms for financial aid

A central player in this tragedy was the European Central Bank. Tooze does a fine job of explaining the delicate dance between the bank’s leaders and its real masters in Germany. Since Germany opposed continent-wide recovery spending, the bank could only pursue monetary policy. The model was the Fed. Yet while the Fed has a congressional “dual mandate” to target both price stability and high employment, the ECB’s charter allowed for price stability only

The ECB, with the consent of the Germans, came up with one of those bland-sounding names, Outright Monetary Transactions, for its direct purchases of government bonds. But the program, at the insistence of the Germans, was restricted to nations in compliance with Merkel’s rigid fiscal terms, which limited national deficits and debts. In other words, the money could not go to the very nations where it was needed most, since the hardest-hit countries had to borrow heavily to get themselves out of the recession

Reading Tooze, you realize that it’s a miracle that the EU and the euro survived at all—but they did so at terrible human cost.

the ideal of liberalized trade, and the use of trade treaties to promote deregulation or privatized regulation of finance, is a major element of the story of how neoliberal hegemony promoted the eventual collapse. But except for a passing reference, trade and globalized deregulation get little mention here.

he has almost nothing to say about Janet Yellen. Her nomination as Fed chair in 2013 to succeed Bernanke was an epochal event and an improbable defeat for the proponents of austerity, deregulation, and bank bailouts who influenced Obama’s policymaking. Yellen, a left-liberal economist specializing in labor markets, was the only left-of-center Fed chair other then FDR’s chairman Marriner Eccles. She also believed in tough regulation of banks. The extension of quantitative easing well beyond its intended end was substantially due to Yellen’s concern about wages and employment, and not just price stability, since low interest rates can also help promote recovery.

Tooze ends the book with a short chapter called “The Shape of Things to Come,” mainly on the ascent of China, the one nation that avoided all the shibboleths of economic and political liberalism, though it also, of course, does not have a political democracy.

“A rising economic tide tends to sink the Trump tugboat,”

This pattern is not limited to the United States. There are numerous studies demonstrating that European and British voters who are falling behind in the global economy, and who were hurt by the 2008 recession and the subsequent cuts to the welfare state, drove Brexit as well as the rise of right-wing populist parties.

political scientists at Penn, Duke and University College London, found, for example,A strong relationship between job loss and decreased generalized solidarity. We find evidence of in-group bias and the bias becomes more pronounced due to exposure to austerity policies

austerity policies adopted in the wake of the 2008 financial collapse were crucial both to voter support for the right-wing populist party UKIP in Britain and to voter approval of Brexit.

the EU referendum (Brexit) could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. These reforms activated existing economic grievances

Further, auxiliary results suggest that the underlying economic grievances have broader origins than what the current literature on Brexit suggests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onward as austerity started to bite.

The results here and in England reinforce the conclusion that the worse things get, the better the right does.

As a rule, as economic conditions improve and voters begin to feel more secure, they become more generous and more liberal. In the United States, this means that voters move to the left

Trump’s populism offered a false but compelling diagnosis of their economic problems, immigrants and insufficiently protectionist trade policy, which dovetails neatly with rural white anxieties about declining cultural status and relative political power. If you can align threats to identity with threats to material security, as Trump did, it’s pretty powerful.

As global competition, outsourcing and later, automation, began to produce significant economic disruption, beginning in the 1970s, this liberal consensus frayed.

If the Republican Party now depends on the votes of those who are falling behind, does the party have a vested interest in economic stagnation and decline?

“as conservatives see it, the more visible government dysfunction is, the better. It provides civic education.”

Taylor argued that as far as conservatives go,anything that dispels the illusion that government can be harnessed for positive ends is generally a good thing, and anything that reduces its power and scope is a salutary development.

postwar prosperity from 1945 to the mid-1970s led to a liberal international consensus:In light of the historical experience of advanced countries, embracing the program of embedded liberalism made economic and political sense. Twentieth-century democratic capitalism had proved to be both successful and resilient: it had delivered high growth; it had allowed governments to fund generous social programs; and it had sent its main political and economic competitor — communism — to the ash heap of history.

But, in actual practice moving from campaigning to governing, Wilkinson continued, Trump’strade war is positively hurting agriculture and manufacturing, and every Republican member of congress has voted multiple times to strip away health benefits — leaving ‘identity threat’ as the party’s last resort.

Identity threat — ‘I don’t recognize this country anymore’ — is very abstract compared to material threat — ‘my daughter with leukemia will die if they don’t cover pre-existing conditions’ — and far less motivating. And the argument that the G.O.P. establishment itself has become a threat to economic/material welfare has started to become persuasive.

It’s going to get worse for the G.O.P. as the urgency of the economic problems grows. But they just don’t understand that pushing the same button over and over isn’t going to have the same effect. And this is so in part because they don’t really want to see the seriousness of economic divergence, because they have no idea what to do about it that is remotely consistent with Zombie Reagan social policy dogma.

This is not, according to Lindsey,a conspiracy, but rather a rotten equilibrium. Lack of trust in government brings charlatans to power, further reducing trust in government and widening the path to power for future charlatans

The first, of course, is Trump himself. His victory in 2016 was a charlatan’s ascent, and his presidency has served to sustain distrust in government — fuel, in one sense, for the continued success of charlatans. For the moment, though, his failure to win money for the border wall has punctured his viability as a governing force.

Trump’s second, if less heralded, achievement has been to invigorate the Democratic opposition

it deserves credit for being willing to rethink its position in the light of evidence.

. European leaders, having created Depression-level suffering in debtor countries without restoring financial confidence, still insist that the answer is even more pain. The current British government, which killed a promising recovery by turning to austerity, completely refuses to consider the possibility that it made a mistake. And here in America, Republicans insist that they’ll use a confrontation over the debt ceiling — a deeply illegitimate action in itself — to demand spending cuts that would drive us back into recession.

Before the turn to austerity, Britain was recovering more or less in tandem with the United States. Since then, the U.S. economy has continued to grow, although more slowly than we’d like — but Britain’s economy has been dead in the water.

the Latvians, they do have something to be proud of. After experiencing a Great-Depression-level slump, their economy has experienced two years of solid growth and falling unemployment. Despite that growth, however, they have only regained part of the lost ground in terms of either output or employment — and the unemployment rate is still 14 percent. If this is the austerians’ idea of an economic miracle, they truly are the children of a lesser god.

in Europe, four years have passed since the Continent turned to harsh austerity programs. The architects of these programs told us not to worry about adverse impacts on jobs and growth — the economic effects would be positive, because austerity would inspire confidence. Needless to say, the confidence fairy never appeared, and the economic and social price has been immense. But no matter: all the serious people say that the beatings must continue until morale improves.

Some of us warned right from the beginning that the plan would be inadequate — and that because it was being oversold, the persistence of high unemployment would end up discrediting the whole idea of stimulus in the public mind. And so it proved.

Prime Minister Antonis Samaras’s government has compiled an 80-page report on reparations and a huge, never-repaid loan the nation was forced to make under Nazi occupation from 1941 to 1945.

Some members of the National Council on Reparations, an advocacy group, are calling for more than $677 billion to cover stolen artifacts, damage to the economy and to the infrastructure, as well as the bank loan and individual claims.

Even the figure for the bank loan is in dispute. The loan was made in Greek drachmas at a time of hyperinflation 70 years ago. Translating that into today’s currency is difficult, and the question of how much interest should be assessed is subject to debate. One conservative estimate by a former finance minister puts the debt from the loan at only $24 billion.

Experts say that the German occupation of Greece was brutal. Germany requisitioned food from Greece even as Greeks went hungry. By the end of the war, about 300,000 had starved to death. Greece also had an active resistance movement, which prompted frequent and horrific reprisals like the one that occurred here in Amiras, a small village in Crete. Some historians believe that 1,500 villages were singled out for such reprisals.

A few individual cases have made their way through the Greek courts, including one representing the victims of a massacre in Distomo in 1944. Germans rampaged through the village gutting pregnant women, bayoneting babies and setting homes on fire, witnesses have said. Lawyers for Distomo won a judgment of $38 million in Greece. But the Greek government has never given permission to lay claim to German property in Greece as a way of collecting on the debt.

“What is unusual about that loan is that there is a written agreement,” said Katerina Kralova, the author of “In the Shadow of Occupation: The Greek-German Relations During the Period 1940-2010.” “In other countries, the Germans just took the money.”

What nonsense am I talking about? Simon Wren-Lewis of the University of Oxford, who has been a tireless but lonely crusader for economic sense, calls it “mediamacro.” It’s a story about Britain that runs like this: First, the Labour government that ruled Britain until 2010 was wildly irresponsible, spending far beyond its means. Second, this fiscal profligacy caused the economic crisis of 2008-2009. Third, this in turn left the coalition that took power in 2010 with no choice except to impose austerity policies despite the depressed state of the economy. Finally, Britain’s return to economic growth in 2013 vindicated austerity and proved its critics wrong.

every piece of this story is demonstrably, ludicrously wrong

Yet this nonsense narrative completely dominates news reporting, where it is treated as a fact rather than a hypothesis. And Labour hasn’t tried to push back, probably because they considered this a political fight they couldn’t win. But why?

Mr. Wren-Lewis suggests that it has a lot to do with the power of misleading analogies between governments and households, and also with the malign influence of economists working for the financial industry, who in Britain as in America constantly peddle scare stories about deficits and pay no price for being consistently wrong. If U.S. experience is any guide, my guess is that Britain also suffers from the desire of public figures to sound serious, a pose which they associate with stern talk about the need to make hard choices (at other people’s expense, of course.)

The fact is that Britain and America didn’t need to make hard choices in the aftermath of crisis. What they needed, instead, was hard thinking — a willingness to understand that this was a special environment, that the usual rules don’t apply in a persistently depressed economy, one in which government borrowing doesn’t compete with private investment and costs next to nothing.

But her decision to embrace more than a million asylum seekers unsettled that cozy status quo. Outside Germany, the austerity she and her longtime finance minister Wolfgang Schäuble imposed on debtor countries like Italy, Spain, Portugal and, especially, Greece sowed misery and resentment that fester to this day.

Some, like the former Greek finance minister Yanis Varoufakis, compare Ms. Merkel’s austerity politics to the Treaty of Versailles, which imposed punitive economic measures on Germany after World War I, humiliated the country and fanned the flames of populism.“This is now what is feeding the political beasts,”

Her modest and moderate governance style, absent ideology and vanity, is the polar opposite of that of the strongmen now strutting the world stage. Her Germany — that “vulnerable hegemon,” as the intellectual Herfried Münkler calls it — became a beacon of liberalism.

Merkel knows a different form of social and societal equality,” Mr. Gysi said, adding of her former center-left rivals: “That made her so much more open to adopting ideas from the Social Democrats.”

“Angela Merkel personifies the best Germany we’ve ever known,” said Timothy Garton Ash, a professor of European Studies at Oxford University. “She managed Germany’s rise to once again become Europe’s leading power. But she failed to prepare Germans sufficiently for what that means.”

Ms. Merkel has never been one for rousing speeches. (“We had those kinds of speeches 70 years ago,” Ms. Roll said. “Her lack of talent and interest in this department was a good thing.”)

She never boasted that Germany got what it wanted after summit meetings (though it mostly did). But as exports and domestic demand boomed, Germany prospered and so did Ms. Merkel’s popularity ratings.

Gregor Gysi, a fellow Easterner and political opponent from the Left party, said that spending half her life under Communism gave her a visceral thirst for freedom — but also made her more socially conscious than other Western conservatives.

But like her friend and ally President Barack Obama — America’s first black president, who was succeeded by President Trump — Ms. Merkel will be judged by what comes next

now in the third so-called grand coalition with the Social Democrats, Ms. Merkel’s habit of taking inspiration from (and credit for) their ideas has left the party a shadow of itself.

It has also opened her own party to challenges on its right flank, leaving room for the emergence of the nationalist Alternative for Germany, which capitalized on her decision on asylum seekers.

The French president François Mitterrand and his British counterpart Margaret Thatcher had both worried about a resurgence of “bad Germans.” Ms. Merkel’s greatest achievement, Ms. Roll said, was that “she came to represent the good Germans.”

“It won Germany incredible respect — this image of a friendly humanitarian Germany, a Germany that protects,” Ms. Roth said. “She marked that image.”

“German populism is perhaps not her child,” said Henrik Enderlein, the dean of the Hertie School of Governance in Berlin. “But it is a child of the Merkel era.”

“An Adenauer or a Kohl would have done it,” Mr. Fischer said. But Merkel, who had grown up behind the Iron Curtain and without the Western pro-European mind-set, “wasn’t there yet,” he said. “Her European conscience was not fully formed yet.

Was hers a European Germany, one that saw Europe’s interests as its own? Or a Germany that ultimately wanted a German Europe?

The real missed opportunity, observers say, was to use the crisis to propel a more far-reaching build-out of European Union institutions, which remain unprepared for the next financial meltdown.

If there was ever a time to make a bold push to complete the institutions of the eurozone, this was it, said Joschka Fischer, a former German foreign minister.

Even before the migration crisis arrived, the debt crisis provided a pivotal test for a chancellor at the helm of a newly dominant Germany.And it led to criticism that Ms. Merkel, while leading humbly, was no less the hegemon — prioritizing German interests; manipulating European Union institutions to Germany’s abiding benefit; turning southern countries into captive export markets; tightening the hold of German banks

“But she always made clear: ‘I don’t build deadly walls,’ ” he recalled her saying. “She grew up behind one.”

In Germany, too, politics has become noisier and nastier. Open sexism has entered the chamber with Alternative for Germany, said Ms. Roth, the vice president of the parliament.“Merkel has been the target of countless attacks, gendered attacks, sexualized dirt,” Ms. Roth said.

Some have begun to referring to Merkelism, a modest but steadfast liberalism built on consensus rather than confrontation, as a recipe for democratic governance in the 21st century. Others fear that Merkelism will disappear with her.

“She is so unvain that she does not overly care about leaving behind a blueprint for the West 4.0,” said Mr. Kornelius, her biographer. “She primarily wants to preserve what she can.”

She has prevented crises rather than carried out visions, Mr. Kornelius said, and has been reactive rather than proactive. “But that is incredibly valuable at a time when we are dealing with questions of our liberal order in an unraveling world — and with leaders like Donald Trump.”

Today, Ms. Merkel’s Germany can feel like a liberal island in a growing sea of illiberal forces. She has not changed — the world around her has.“She is already an exception today,” Mr. Knaus said. “I hope she is not a relic of an era that is coming to an end.”

“She was a catastrophe,” said Mr. Varoufakis, the former Greek finance minister, “and she will be missed, because who comes next will certainly be worse.”

A brutal counterinsurgency subdued the Tupamaros, and the police captured Mr. Mujica in 1972. He spent 14 years in prison, including more than a decade in solitary confinement, often in a hole in the ground. During that time, he would go more than a year without bathing, and his companions, he said, were a tiny frog and rats with whom he shared crumbs of bread.

Some of the other Tupamaros who were placed for years in solitary confinement failed to grasp the benefits of befriending rodents.

It should have been obvious that the deficit would come down as the economy recovered. But this point was hard to get across until deficit reduction started appearing in the data.

Now it has — and reasonable forecasts, like those of Jan Hatzius of Goldman Sachs, suggest that the federal deficit will be below 3 percent of G.D.P., a not very scary number, by 2015.

the third reason the deficit scolds have lost influence: the contrary doctrine, the claim that we need to practice fiscal austerity even in a depressed economy, has failed decisively in practice.

Consider, in particular, the case of Britain. In 2010, when the new government of Prime Minister David Cameron turned to austerity policies, it received fulsome praise from many people on this side of the Atlantic. For example, the late David Broder urged President Obama to “do a Cameron”; he particularly commended Mr. Cameron for “brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain’s economic recovery and throw the nation back into recession.” Sure enough, the sudden, severe medicine cut short Britain’s economic recovery, and threw the nation back into recession.

there was also clearly a lot of bad faith involved, as the scolds tried to exploit an economic (not fiscal) crisis on behalf of a political agenda that had nothing to do with deficits. And the growing transparency of that agenda is the fourth reason the deficit scolds have lost their clout.