Written by: Mike Whitney May 24, 2011
Stocks dropped on Monday asThe problem is simple; the current belt-tightening policy has failed, so it’s time to move on to Plan B. But the folks in charge don’t want to change policies because then the banks (who own a large share of the bonds) would take a hit on their investments. So, the fiasco drags on while the debts pile up and while peaceful street demonstrations turn into violent conflagrations. The bigwigs at the EU and ECB would rather see cities across the continent descend into a bloody free-for-all than lose one euro on their original investment. Here’s how economist Mark Weisbrot sums it up:
“The peripheral European countries are stuck in a currency union where their monetary policy is dictated by the European Central Bank (ECB), which is far to the right of the U.S. Federal Reserve and has little interest in helping them. Since they have adopted the Euro, they also do not control their exchange rate, and their fiscal policy is going in the wrong direction…
“This does not make any economic sense, except from the point of view of creditors that want to make sure that these countries are punished for their “excesses” – although for the most part, it was not over-borrowing but the collapse of bubble growth and the world financial crisis and recession that brought them to this situation. Unfortunately, the view of the creditors is that which prevails among the European authorities….
“When will it end? So long as these governments are committed to policies that shrink their economies, their only hope is that the global economy will pick up steam and pull them out with demand for their exports. This does not look likely in foreseeable future – the rest of Europe is not growing that rapidly and the
What Greece needs is a way to dig out, which means debt forgiveness and a hefty fiscal stimulus package to rev up activity and put people back to work. Unfortunately, the EU doesn’t have a mechanism for delivering fiscal aid to the weaker states. All they can do is extend loans to the struggling members and encourage them to slash domestic spending as mush as possible. But that just increases unemployment, decreases revenues and makes and even bigger hole. The whole process fuels public outrage which further exacerbates the economic troubles. The best thing to do is nip it in the bud; figure out what needs to be done and then do it. By dragging their feet, the ECB and IMF have only increased the chances of another meltdown.
So, what would happen if
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If
Talk about throwing gas on a fire! Does Lagarde want to kick off her appointment by sending the markets into freefall?
Things are looking bleaker and bleaker for
About the author:
Mike WhitneyMike Whitney writes on politics and finances and lives in
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