In the process of insanely committing economic suicide?
April 16, 2012
(INTERNATIONAL) -- You may already have heard the stories of some people in Europe committing “suicide by economic crisis”-- people taking their own lives in despair over unemployment, business failure, no money and no prospects for the future.
But is the larger story not so much about individual suicides but about “the apparent determination of European leaders to commit economic suicide for the Continent as a whole,” as one economist writes?
Economist Paul Krugman thinks that is what we are watching in slow motion as European leaders, “Double 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. Never mind talk of recession; Spain is in full-on depression, with the overall unemployment rate at 23.6 percent, comparable to America at the depths of the Great Depression, and the youth unemployment rate over 50 percent. This can’t go on — and the realization that it can’t go on is what is sending Spanish borrowing costs ever higher,” writes Krugman in a new piece in the New York Times.
European leaders have decided they can cut, cut and cut their way to fiscal solvency with no plan for the production side of the equation and no investment in production.
“In a way, it doesn’t really matter how Spain got to this point — but for what it’s worth, the Spanish story bears no resemblance to the morality tales so popular among European officials, especially in Germany. Spain wasn’t fiscally profligate — on the eve of the crisis it had low debt and a budget surplus. Unfortunately, it also had an enormous housing bubble, a bubble made possible in large part by huge loans from German banks to their Spanish counterparts. When the bubble burst, the Spanish economy was left high and dry; Spain’s fiscal problems are a consequence of its depression, not its cause,” writes Krugman who adds that the prescription for health coming from Berlin and Frankfurt is…insane.
Insane because that prescription is for yet more “fiscal austerity.”
“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. And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programs haven’t even worked as a way to reduce borrowing costs,” says Krugman.
He says it is hard now not to have a sense of despair since 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.”
The full story can be read here