FacebookTwitterGoogle+RedditEmail

Austerity for Europe

by MARK WEISBROT

The house is on fire and the owners are arguing about what kind of safety regulations should be implemented in the future so as to prevent these types of fires.  That is what appears to be going on in the eurozone right now, as European leaders try to reach agreement on a series of measures that would impose “fiscal discipline” on member states in the future.

Of course, these would-be fire marshals haven’t even identified the correct safety regulations, since it was not over-borrowing by governments that caused this crisis, but rather over-borrowing, bubble-driven growth, and other excesses of the private sector.  But the most urgent problem right now is the fire itself – the eurozone is already in recession, according to the OECD, and their financial crisis is already slowing the world economy. This includes Brazil, which today announcedthat GDP growth for the third quarter has been zero.

However, we have entered a new phase of the crisis — although it has been barely noticed by the media — which is mainly focused on the proposed fire safety regulations.  On Friday, the head of the European Central Bank (ECB), Mario Draghi, hinted for the first time that the ECB could play a bigger role in buying Italian and Spanish bonds.  According to press reports, he justified this on the grounds that the ECB had a responsibility to maintain price stability “in either direction.”

This is a 180-degree turn-around from the ECB’s prior insistence that such action would violate the treaty that established the Bank’s mandate.  In other words, he was saying that the ECB could intervene more with the rationale that it is preventing deflation, which is a possibility (though still remote) if Europe slides further into recession.  Of course this is just a not-very-credible excuse, but a very welcome one for Europe and the world, since Italian and Spanish bonds are at the heart of the current crisis. If the ECB were to commit to keeping these interest rates at low levels by buying these bonds, financial markets would stabilize and the eurozone could potentially recover.

But there is a catch:  the ECB will only do its job and end the crisis if it gets the austerity it wants from European governments.   Now we can see in clear daylight what is really going on:  the ECB – backed by Germany and some other governments —  can end the crisis at any time, at no cost to European taxpayers.  But it is prolonging the crisis in order force “reforms” — such as raising the retirement age, cutting spending, privatizations, even EU control over national budgets – that most Europeans would never vote for.

That is why the eurozone crisis is far from over:  not because of the difficulties of governance with 17 countries.  It’s because the ECB and its allies don’t really want to resolve the crisis as much as they want these unpopular “reforms.”   At best, the European authorities will do enough to avoid a financial meltdown, but risks will most likely return as they push Europe further into recession with unnecessary and harmful fiscal tightening.

Mark Weisbrot is an economist and co-director of the Center for Economic and Policy Research. He is co-author, with Dean Baker, of Social Security: the Phony Crisis.

This article originally appeared in Folha de São Paulo (Brazil).

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. and president of Just Foreign Policy. He is also the author of  Failed: What the “Experts” Got Wrong About the Global Economy (Oxford University Press, 2015).

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
February 24, 2017
Friday - Sunday
Pierre M. Sprey - Franklin “Chuck” Spinney
Sleepwalking Into a Nuclear Arms Race with Russia
Jeffrey St. Clair
Roaming Charges: Exxon’s End Game Theory
John Laforge
Did Obama Pave the Way for More Torture?
Ajamu Baraka
Malcolm X and Human Rights in the Time of Trumpism:  Transcending the Masters tools
Paul Street
Liberal Hypocrisy, “Late-Shaming,” and Russia-Blaming in the Age of Trump
Vijay Prashad
A Foreign Policy of Cruel Populism
John Chuckman
Israel’s Terrible Problem: Two States or One?
Matthew Stevenson
The Parallax View of Donald Trump
Stan Cox
Can the Climate Survive Electoral Democracy? Maybe. Can It Survive Capitalism? No.
Ramzy Baroud
The Trump-Netanyahu Circus: Now, No One Can Save Israel from Itself
Chuck Collins
Wall Street Hopes You’ve Forgotten the Crash Already
Edward Hunt
The United States of Permanent War
Pete Dolack
The Bait and Switch of Public-Private Partnerships
Elliot Sperber
Why Resistance is Insufficient
Brian Cloughley
What are You Going to Do About Afghanistan, President Trump?
Binoy Kampmark
Warring in the Oncology Ward
Yves Engler
Remembering the Coup in Ghana
Jeremy Brecher
“Climate Kids” v. Trump: Trial of the Century Pits Trump Climate Denialism Against Right to a Climate System Capable of Sustaining Human Life”
Franklin Lamb
Another Small Step for Syrian Refugee Children in Beirut’s “Aleppo Park”
Ron Jacobs
The Realist: Irreverence Was Their Only Sacred Cow
Robert Koehler
Costa Rica’s Peace Journey
Andre Vltchek
Lock up England in Jail or an Insane Asylum!
Paul DeRienzo
Three Years Since the Kitty Litter Disaster at Waste Isolation Pilot Plant
Eric Sommer
Organize Workers Immigrant Defense Committees!
Steve Cooper
A Progressive Agenda
Andrew Stewart
The 4CHAN Presidency: A Media Critique of the Alt-Right
Edward Leer
Tripping USA: The Chair
Nyla Ali Khan
One Certain Effect of Instability in Kashmir is the Erosion of Freedom of Expression and Regional Integration
Rob Hager
The Only Fake News That Probably Threw the Election to Trump was not Russian 
Mark Dickman
The Prophet: Deutscher’s Trotsky
Christopher Brauchli
The Politics of the Toilet Police
Charles R. Larson
Review: Timothy B. Tyson’s “The Blood of Emmett Till”
February 23, 2017
Dave Brotherton
Trump, Moral Panics and Resistance
Jonathan Cook
One State: Trump Has Reminded Palestinians What It Was Always About
Bill Quigley
Ten Examples of Direct Resistance to Stop Government Raids
Linn Washington Jr.
Bigot Boy Business: Trump Exposes His Ignorance and Intolerance, Again
John W. Whitehead
The Illusion of Freedom: the Police State Is Alive and Well
Ralph Nader
Restricting People’s Use of Their Courts
David Macaray
Women As Labor Union Organizers
Kathy Kelly
Friendship in Defiance of War
Doug Weir
Why Did the US Use Depleted Uranium Weapons in Syria?
Steve Horn
Former GOP Congressional Staffer Follows Revolving Door, Now Latest Keystone XL Lobbyist
Binoy Kampmark
From Rights to Repentance: Norma McCorvey and Roe v Wade
Thomas Knapp
The Target of the “Border Adjustment Tax” is You
Chris Zinda
Open Letter to Neoliberal Environmentalists
FacebookTwitterGoogle+RedditEmail