How Austerity Is Killing Europe by Jeff Madrick | NYRblog | The New York Review of Books:
Germany has the financial wherewithal to lead this rescue. But it is blocking the fiscal union from acting like a single nation with compassion for all Eurozone citizens. It is also refusing to underwrite a substantial new fiscal stimulus—good-old fashioned Keynesianism. Is this a new national arrogance? I hope not. So far, Germany is benefitting from the crisis as investors buy German bonds as safe havens from the turmoil. In fact, the failure to act will soon affect the German economy. It will take financial losses on its banks’ loans to the peripheral nations and its export markets will weaken. The bond buyers who are now gobbling up German debt, thus keeping rates low while they rise in Italy, Greece, Portugal, and Spain, will likely stop doing so.
The EU leaders must get over their obsession with eliminating deficits. They now want to reduce every country’s deficit to less than 0.5 percent. This is disaster. It will lead to very slow growth for a long time. Instead, they must use temporary deficits to restart growth. Rarely has policymaking been this poor. Sooner than later, the citizens of these nations will say, No more!, and political instability will result.
The EU leaders must get over their obsession with eliminating deficits. They now want to reduce every country’s deficit to less than 0.5 percent. This is disaster. It will lead to very slow growth for a long time. Instead, they must use temporary deficits to restart growth. Rarely has policymaking been this poor. Sooner than later, the citizens of these nations will say, No more!, and political instability will result.
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