The American criticism of Europe’s lack of stimulus packages to the economy is receiving anything but understanding in Europe.
Angela Merkel quoted in Frankfurter Allgemeine Zeitung:
A borrowed growth would bring us right back to the start of the crisis.
Krugman’s recommendations invoke a scathing remark from blogger Uffe Ellemann-Jensen (former Danish foreign secretary) that Krugman’s specialty in economics is as relevant to macroeconomics as a podiatrists skills are to brain surgery.
Ellemann points out that Krugman hasn’t a clue of what he is talking about – completely disregarding the background for the cutbacks in Europe.
What is needed are radical reforms in Europe labour markets, pension systems and welfare benefits. This happens at a time when Europe is losing competitive edge to Asia and Latin America.
I disagree with Ellemann as to the Asia and Latin American part, as Latin America will be hit when raw materials export grinds to a halt as Asia slows down or even collapse. Otherwise Ellemann is right on target.
Ellemann continues to foresee that Hollande in France will be force to run from his election promises with the same alacrity the Danish social democratic has done. What the Greeks will do is anybody’s guess.
In this he is supported by Wolfgang Schäuble (German Finance Minister) that said that it is up to the Greek people. (in several European papers)
Here it should be noted that CDU members have aired the opinion that the aid would be held back until concrete signs of compliance from Greece were evident – eventually Greece could face an expulsion from the Eurozone.
It is a well-known political ploy to let one of your minions wave the knuckleduster under the nose of business partners with hesitancy to perform according to agreement.
In this context Greece should realise that there is no more patience. There might very well be made an example of Greece – if for no other reason: To prepare the ground for Spain.
President Obama’s thoughts will certainly not find fertile ground in Europe.
The disaster in progress in Spain with Bankia illustrates very well what is fundamentally wrong with Obama’s complaint.
- Bankia is a 17 month old merger of 7 or 8 local banks that had financed local real estate development totally irresponsibly. The local authorities were only too happy to help, as the economic activity created tax revenue. Merging 8 times garbage bank did not create a healthy bank – on the contrary. The suggestion of part nationalisation doesn’t work either. A 45% government share will only be waste of tax payers’ money. This suggestion led to the de facto dismissal of the Bankia CEO – despite being very prominent.
If Obama think that a Bankia disaster is to be repeated on a European scale just for the sake of carrying on a year longer. According to El País Jörg Asmussen (board member of the ECB) the ECB is not adverse to a European financing of a bank restructuring.
So to bring any consistency to the European policy the Spanish mess should not be propagated to a European level with neither growth through further irresponsible loans nor with a Japanese solution where bad loans have been kept in a central governmental deep freezer for the past 20-25 years.