Eurozone death drive

In talks with the IMF, European governments have pledged to take “all necessary measures” to prevent the collapse of the Eurozone. However, as New York Times columnist and Economics Nobel Prize laureate Paul Krugman points out, until now their actions have only served to undermine the single currency.

Published on 26 September 2011 at 15:00

Is it possible to be both terrified and bored? That’s how I feel about the negotiations now under way over how to respond to Europe’s economic crisis, and I suspect other observers share the sentiment.

On one side, Europe’s situation is really, really scary: with countries that account for a third of the euro area’s economy now under speculative attack, the single currency’s very existence is being threatened — and a euro collapse could inflict vast damage on the world.

On the other side, European policy makers seem set to deliver more of the same. They’ll probably find a way to provide more credit to countries in trouble, which may or may not stave off imminent disaster. But they don’t seem at all ready to acknowledge a crucial fact — namely, that without more expansionary fiscal and monetary policies in Europe’s stronger economies, all of their rescue attempts will fail.

So now what? Europe’s answer [to the economic and fiscal crisis and the collapse of investor confidence in the peripherial nation’s bonds] has been to demand harsh fiscal austerity, especially sharp cuts in public spending, from troubled debtors, meanwhile providing stopgap financing until private-investor confidence returns. Can this strategy work?

Receive the best of European journalism straight to your inbox every Thursday

Not for Greece, which actually was fiscally profligate during the good years, and owes more than it can plausibly repay. Probably not for Ireland and Portugal, which for different reasons also have heavy debt burdens. But given a favorable external environment — specifically, a strong overall European economy with moderate inflation — Spain, which even now has relatively low debt, and Italy, which has a high level of debt but surprisingly small deficits, could possibly pull it off.

Read full article in the New York Times

From the Netherlands

Euro crisis suits banks to a tee

Now that there are serious doubts about the future of the euro, some commentators have forecast “catastrophe scenarios” which, at the end of the day, “only serve to promote the interests of the banks”, argues Ewald Engelen, in NRC Handelsblad. According to the University of Amsterdam’s Professor of Financial Geography, the “civil wars”, “snowball effects” and other dramatic consequences cited “by well-known think tanks, and renowned economists,” when considering the fate of “more or less stable banks” are not “realistic”. If “Greece’s departure from the Eurozone proves to be as painful as some have claimed, other countries are hardly likely to follow its example”, notes Engelen. “Of course, if Greece went bankrupt and re-introduced the Drachma, some of its less than conscientious creditors (BNP Paribas, Dexia, Commerzbank) would go to the wall”. But, in any case, these banks are “already dependent on central banks, which is why they have been dubbed ‘dead men walking’ in banking circles. Given that it is not certain that Greek default would change much, why all the apocalyptic scenarios? I can think of only one plausible reason: the banks are once again trying to make use of threats and blackmail to force the taxpayer to foot the bill for their incompetence”.

Tags

Was this article useful? If so we are delighted!

It is freely available because we believe that the right to free and independent information is essential for democracy. But this right is not guaranteed forever, and independence comes at a cost. We need your support in order to continue publishing independent, multilingual news for all Europeans.

Discover our subscription offers and their exclusive benefits and become a member of our community now!

Are you a news organisation, a business, an association or a foundation? Check out our bespoke editorial and translation services.

Support independent European journalism

European democracy needs independent media. Join our community!

On the same topic