vendredi 20 avril 2012

Europe at the brink of suicide *

            April 14, The New York Times echoed a phenomenon that is growing in Europe: Suicide linked to the economic crisis, people giving death by despair after losing their jobs or seen their company going bankrupt. The article was overwhelming. But I'm sure I was not the only reader, especially among economists, to think that the problem was perhaps not as individuals that the apparent determination of Europe's leaders to push the whole continent to suicide.
Take the case of Spain, which is today the epicenter of the crisis. It is not in recession, but in a deep depression, with an unemployment rate of 23.6% - a figure comparable to the U.S. during the 1929 crisis - and over 50% among youth. This can not last - and this is precisely why the interest rates payable by Madrid are rising.
In a sense, no matter under what circumstances in Spain got there. But his problems have nothing to do with the stories told by European leaders, particularly in Germany. The country can not be accused of fiscal profligacy: the eve of the crisis, public debt was low and its budget surplus.

When the Spanish property bubble burst!

But Spain was unfortunately hit by a huge housing bubble, largely due to huge loans granted by German banks to their Spanish counterparts. When the bubble burst, Spain was left with a battered economy: the country's fiscal problems are the consequence of the crisis, not its cause.
However, the remedy prescribed by Berlin and Frankfurt is, you guessed it, more rigor. I will not mince words: this is totally crazy. Several years ago that Europe applies austerity plans extremely rigorous and the results are exactly what may have been predicting history students: those plans have exacerbated the recession in which these countries were already experiencing.
And as investors take into account the economic situation of a country to assess its ability to repay, the austerity programs have not even helped reduce the cost of borrowing.
It takes more budget flexibility
What is the solution? In the 1930s, the primary condition for overcoming the crisis was the abandonment of the gold standard. The equivalent today would be to abandon the euro and return to national currencies. Such an initiative may seem inconceivable - and she probably would have terribly disruptive effects on the economic and political. But what is truly inconceivable, is to continue along the same path by imposing austerity always harder to countries with unemployment rates comparable to that of America during the 1929 crisis.
If European leaders really wanted to save the euro, they would opt for another solution, rather obvious. Europe needs a more expansionary monetary policy, with a strong commitment to the European Central Bank (ECB) to accept a slight increase in inflation.

The whole world will pay the price.

Europe also needs an expansionary fiscal policy, with a budget that would neutralize the German austerity in Spain and other countries in trouble on the periphery of Europe, instead of strengthening it as today. These policies would not prevent those countries to live very difficult years, but at least would they raised hopes of a recovery.
Now we are confronted with a lack of flexibility. In March, EU leaders signed a pact imposing fiscal austerity as the solution to all problems. For its part, the ECB announces its willingness to increase interest rates at any sign of inflation. It is difficult, under such conditions, to escape despair.
         Rather than admit their mistakes, European leaders seem determined to throw their economy - and society - from the top of the cliff. And that's the world who will pay the price.
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*Article de Paul R. Krugman, Nobel Prize 2008,  published in the The New York Times of April 14, 2012.

*Paul Robin Krugman was born February 28, 1953 in Long Island in the United States. Grand son of a Jewish immigrant from Brest in Belarus, he obtained a doctorate (PhD) in Economics at the Massachusetts Institute of Technology (PIT) in 1977. After teaching at MIT for ten years (1984-1994) then at Stanford University from 1984 to 1996 he was professor of economics and international relations at Princeton University.
It is renowned for its work in economic geography, intiation of the new international trade theory. He received the Nobel Prize in Economics in 2008.

1 commentaire:

  1. P. Krugman is NOT the right or best person to discuss the Germany/Spain economical bridge . He is by far too liberal to understand these intrincacies.Besides, he must suffer from WWII nightmares, and, on top of that, the ''Nobel went'' to him. Everybody knows why, right?