Bernancke contrasts the Eurozone’s recovery with the US since the financial crisis of 2008. He shows graphically that Europe has been very disappointing in contrast to the US. He highlights three factors:
- Political constraints on the ECB (largely from Germany in my view)
- Excessively conservative fiscal policy, especially in Germany; and
- Delays in introducing effective stress tests for European banks (the most exposed banks were in France & Germany).
In his view, structural reform is of limited value, especially with so much unemployment and weak demand.
He offers two excellent proposals:
1. Linking Greece’s fiscal constraints to overall European growth, and
2. Broadening the scope of the Stability Growth Pact (which deals with fiscal deficits) to include sustained trade imbalances/
On balance, the article questions Germany’s economic policy and effectively holds Germany responsible for the current state of the Eurozone.
The article is very easy to read and makes a lot of sense.