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Just a few months ago I was feeling some hope about Europe. You may recall that late last fall Europe appeared to be on the verge of financial meltdown; but the European Central Bank, Europe’s counterpart to the Fed, came to the Continent’s rescue. ...|
The question then was whether this brave and effective action would be the start of a broader rethink, whether European leaders would ... reconsider the policies that brought matters to a head in the first place.
But they didn’t. Instead, they doubled down on their failed policies and ideas. And it’s getting harder and harder to believe that anything will get them to change course.
Consider the state of affairs in Spain, which is now the epicenter of the crisis. ...Spain is in full-on depression, with the overall unemployment rate at 23.6 percent... This can’t go on — and the realization that it can’t go on is what is sending Spanish borrowing costs ever higher. ...
Nonetheless, the prescription coming from Berlin and Frankfurt is, you guessed it, even more fiscal austerity.
This is, not to mince words, just insane. Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression. ...
What is the alternative? Well, in the 1930s — an era that modern Europe is starting to replicate in ever more faithful detail — the essential condition for recovery was exit from the gold standard. The equivalent move now would be exit from the euro, and restoration of national currencies. ...
So if European leaders really wanted to save the euro they would be looking for an alternative course. And the shape of such an alternative is actually fairly clear. The Continent needs more expansionary monetary policies, in the form of a willingness — an announced willingness — on the part of the European Central Bank to accept somewhat higher inflation; it needs more expansionary fiscal policies, in the form of budgets in Germany that offset austerity in Spain and other troubled nations around the Continent’s periphery, rather than reinforcing it. ...
What we’re actually seeing, however, is complete inflexibility. ... So it’s hard to avoid a sense of despair. Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff. And the whole world will pay the price.