Dr Alf’s Two Cents: Austerity Zombie Banks and Roadblocks to Investment in Soutern Europe

One of a number of posters created by the Econ...

One of a number of posters created by the Economic Cooperation Administration to promote the Marshall Plan in Europe (Photo credit: Wikipedia)

This is an excellent MUST READ article published in the Wall Street Journal.

Austerity’s Not the Only Burden in Europe – WSJ.com.

For me, it confirms that the troika of the IMF, ECB, and EC have been myopic in dealing with the financial crisis in Southern Europe. Let’s recap on the context. Austerity is reducing demand and putting more people out of work, driving record numbers to suicide. Meanwhile, the banks in Southern Europe don’t or can’t lend to small businesses, the backbone of the economy. Clearly, massive investment is required into top-quality, properly costed and risk-assessed infrastructure projects to kick-start growth based on Keynesian principles. These national infrastructure projects will need to be financed by a new initiative, similar to the Marshall Plan that kick-started Germany’s growth after WWII.

Any thoughts?

 

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The Chutzpah Caucus – NYTimes.com – Paul Krugman

Girl from Southern Europe with a napkin

Girl from Southern Europe with a napkin (Photo credit: SCA Svenska Cellulosa Aktiebolaget)

Paul Krugman, Laureate of the Sveriges Riksban...

Paul Krugman, Laureate of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008 at a press conference at the Royal Swedish Academy of Sciences in Stockholm (Photo credit: Wikipedia)

One of a number of posters created by the Econ...

One of a number of posters created by the Economic Cooperation Administration to promote the Marshall Plan in Europe (Photo credit: Wikipedia)

…………………………………………………………………………………………………………………………………………………………Here is another excellent article by Nobel Prize winning, liberal economist, Paul Krugman, writing in his Op-Ed blog in the NYT. It’s well worth a read.Check it out!

The Chutzpah Caucus – NYTimes.com.

The article is focused on the US but the conclusions are transferable.

The article explores why the totally discredited arguments in favor of austerity in recession or low growth is still the policy of choice by Governments and their conservative sponsors.

The article makes the point that conservatives do not trust Governments sufficiently to:

  • Reflate their economies wisely to stimulate growth; and
  • When the economies recover to re-introduce good economic housekeeping (austerity).

Transferring this argument to Europe, there is another dimension. In Europe, because of the economic straitjacket of the Euro conservatives in Germany seem to be dictating policy for the whole of Europe.

Surely, there is room for common ground, finding policy options for reflation that will address the concerns of conservatives?

For example, there seems to be an overwhelming case favor of stimulating massive capital spending in properly costed infrastructure projects. Within the Eurozone, there is also the need for North Europe to invest in suitable capital projects in Southern Europe, like for example offshore gas and oil in Cyprus. In effect, this is similar to a modern-day Marshall Plan.

However, to satisfy the conservatives, the reflation into capital spending must contain safeguards for prudent financial housekeeping as argued by German Chancellor Angela Merkel.

Do you have any other suggestions on how we can overcome the fears of conservatives and give the recovery a chance to grow, creating much needed jobs? One option is a massive war to stimulate economic growth, but I am inviting other more peaceful options, please?

Any thoughts?

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