Austerity has long been the let's keep the Germans happy policy, and I have been saying ever since they came up with the plan after the Great Recession that it was nuts, so have some noble prize winning economists btw [Krugman, Stiglitz]. Now the Governor of the Bank of England has spoken out.
The Bank of England governor, Mark Carney, has launched a strong attack on austerity in the eurozone as he warned that he single-currency area was caught in a debt trap that could cost it a second lost decade.
You don't say.
While not mentioning any eurozone country by name, Carney made it clear that he thought the failure to complete the process of integration coupled with over-restrictive fiscal policies risked driving the 18-nation single currency area deeper into a debt trap.
Really, what a surprise, not
He contrasted the UK with the eurozone, where output unadjusted for inflation has increased by 5% in almost seven years and inflation excluding fuel and food prices has been below 1% for over a year. “This is potentially dangerous. Low nominal growth is intensifying the euro area’s debt burden. The fear of stagnation is holding back spending and investment.”
Stating the obvious.
He also discusses a very basic subject, the way Europe is actually operating as separate states, but still trying to adopt a single currency. This is impossible unless you actually have a fiscal union, i.e. a federal Europe. Since there is not the courage to go the whole way, then what we have is a badly operating technocracy which works when there is growth but is damn near suicidal when there is not.
In a Federal Europe, like in the US a central economic policy allows for movements from rich to poor areas coupled with the free movement of people. In Europe the rich States want to have their cake and eat it, a free market for their goods but strict fiscal control of their wealth. This may seem normal, but it makes for a defunct European Union.
I have argued for over a decade now that if you are unwilling to create a Federal Europe then you have to have multiple currencies. One or the other would work, but a mishmash of the two is courting disaster.
The way Europe operates now is completely undemocratic where rich nations impose their will and the countries worst hit by the Global Banking Scandal have no flexibility in how they get out of the rut. For Greece, Spain, Portugal, Ireland and to some extent France this has meant unnecessary and prolonged economic damage.
When you only half complete a project there is little chance that it is going to work, perhaps when the conditions are favorable the cracks are papered over, but when you push it, it breaks. Either have the courage to finish the European Union [unlikely now] or get rid of the single currency. Just call it a mistake if you like.
The Greeks have elected a very interesting group of intellectuals to run their country. These are not your typical politicians, including an expert in game theory, Yanis Varoufakis as finance minister, this could make for some unusual maneuvering.
Just a thought