Tuesday, October 29, 2013

Austerity Supporters In Europe Lose Out To More Debt And Money Printing


by Cornelius Nunev


New York Times columnist Paul Krugman recommends that European austerity is damaged. It should be repaired, and one of the only approaches to do it is be abandoning the euro.

Signs of revolt

France and Greek held political elections on May 6, and both countries showed a strong support for candidates who were against austerity policies. Lots of people have lost their jobs in European nations due to revolts over the circumstances. The "unwashed masses" are done with austerity measures proposed and passed now, although a new policy has not been enacted, according to Krugman.

Franois Hollande's defeat of French President Sarkozy was painted in ominous tones by The Economist, which considers Hollande's turn from malfunctioning orthodoxy to be "rather dangerous." However, from an economic standpoint, Sarkozy's strategies - passed in close tandem by neighboring political ally Chancellor Angela Merkel of Germany - clearly weren't working, says Krugman. Two years of austerity have done nothing but grind into the public, and the voters had enough.

Economy not getting better

The austerity measures were initiated in an attempt to try and get outcomes in the tough economy. The problem was that people could not spend more because they did not have the cash with all spending cuts and job eliminations. The economic depression just got worse with the measures.

In Ireland, austerity measures were enacted to get favor and improve the nation's standing in the bond markets. Conventional wisdom suggested austerity would work on that level, but what actually happened in Ireland is borrowing costs remained considerably higher than those in Spain, Italy and Germany. The European press drank the Kool Aid legislators were serving and declared Ireland's measures a success, regardless of obvious evidence to the contrary.

Where Europe can go from here

Krugman recommends that the euro should be abolished. If Greece, Spain, Ireland and other nations in economic trouble still had their own currency, Europe wouldn't be in such a pickle. Troubled nations could easily restore cost-competitiveness and exports via devaluation of the currency. Iceland did it to the krona and allowed its banks to fail, and the country is now on the road to recuperation.

Killing the euro would be disruptive for a time and an utter defeat for the concept of the European Union. But Europe as a whole would not be financially compromised. Krugman wonders whether there is one more way out, via an economic road once paved by Germany. By trading with nations facing an inflationary boom, countries with above-normal inflation can experience a trade surplus compared with its struggling neighbors, provided interest rates are low.

According to Krugman, none of this will work unless the European Central Bank changes from thinking about inflation to thinking about economic growth.




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