That was now this is then
Just when it seemed that things couldn’t get worse, it appears that they have. Even some of the ostensibly “responsible” members of the eurozone are facing higher interest rates. Economists on both sides of the Atlantic are now discussing not just whether the euro will survive, but how to ensure that its demise causes the least turmoil possible. (…)
Public-sector cutbacks today do not solve the problem of yesterday’s profligacy; they simply push economies into deeper recessions. Europe’s leaders know this. They know that growth is needed. But, rather than deal with today’s problems and find a formula for growth, they prefer to deliver homilies about what some previous government should have done. This may be satisfying for the sermonizer, but it won’t solve Europe’s problems – and it won’t save the euro.
{ Joseph E. Stiglitz/Project Syndicate | Continue reading }
The strong countries of Europe are being asked to foot the bill for the profligate countries and that is not a sustainable policy. The weak countries are de facto bankrupt, should face that fact, and default, if necessary, on their debt. This will force them into balancing their budgets, becoming more disciplined, and to live within their means. Investors will return if these actions are credible, as investors are remarkably forgiving, buoyed by hope that stability and growth will return. Default is not the end of the world but a means to restore government balance sheets that are in effective negative equity. And the US is by no means immune to the consequences of having engaged in unsustainable excesses both public and private.
