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

January 19, 2017
Melvin Goodman
America’s Russian Problem
Dave Lindorff
Right a Terrible Wrong: Why Obama Should Reverse Himself and Pardon Leonard Peltier
Laura Carlsen
Bringing Mexico to Its Knees Will Not “Make America Great Again”
John W. Whitehead
Nothing is Real: When Reality TV Programming Masquerades as Politics
Yoav Litvin
Time to Diss Obey: the Failure of Identity Politics and Protest
Mike Whitney
The Trump Speech That No One Heard 
Conn Hallinan
Is Europe Heading for a “Lexit”?
Stephen Cooper
Truth or Twitter? Why Donald Trump Is No John Steinbeck
Binoy Kampmark
Scoundrels of Patriotism: The Freeing of Chelsea Manning
Ramzy Baroud
The Balancing Act is Over: What Elor Azaria Taught Us about Israel
Josh Hoxie
Why Health Care Repeal is a Stealth Tax Break for Millionaires
Kim C. Domenico
It’s High Time for a Politics of Desire
Shamus Cooke
Inauguration Day and Beyond
Clark T. Scott
More and More Lousy
David Swanson
Samantha Power Can See Russia from Her Padded Cell
Kevin Carson
Right to Work and the Apartheid State
Malaika H. Kambon
Resisting the Lynching of Haitian Liberty!
January 18, 2017
Gary Leupp
The Extraordinary Array of Those Questioning Trump’s Legitimacy (and Their Various Reasons)
Charles Pierson
Drone Proliferation Ramps Up
Ajamu Baraka
Celebrating Dr. King with the Departure of Barack Obama
David Underhill
Trumpology With a Twist
Chris Floyd
Infinite Jest: Liberals Laughing All the Way to Hell
Stansfield Smith
Obama’s Hidden Role in Worsening Climate Change
Ron Leighton
Trump is Not Hitler: How the Misuse of History Distorts the Present as Well as the Past
Ralph Nader
An Open Letter to President-Elect Donald Trump
Binoy Kampmark
NATO and Obsolescence: Donald Trump and the History of an Alliance
Zarefah Baroud
‘The Power to Create a New World’: Trump and the Environmental Challenge Ahead
Julian Vigo
Obama Must Pardon the Black Panthers in Prison or in Exile
Alfredo Lopez
The Whattsapp Scandal
Clancy Sigal
Russian Hacking and the Smell Test
Terry Simons
The Truth About Ethics and Condoms
January 17, 2017
John Pilger
The Issue is Not Trump, It is Us
John K. White
Is Equality Overrated, Too?
Michael J. Sainato
The DNC Hands the Democratic Party Over to David Brock and Billionaire Donors
John Davis
Landscapes of Shame: America’s National Parks
Andrew Smolski
Third Coast Pillory: Politicians and Rhetorical Tricks
Chris Busby
The Scientific Hero of Chernobyl: Alexey V. Yablokov, the Man Who Dared to Speak the Truth
David Macaray
Four Reasons Trump Will Quit
Chet Richards
The Vicissitudes of the Rural South
Clancy Sigal
“You Don’t Care About Jobs”: Why the Democrats Lost
Robert Dodge
Martin Luther King and U.S. Politics: Time for a U.S. Truth and Reconciliation Commission
Jack Sadat Lee
I Dream of Justice for All the Animal Kingdom
James McEnteer
Mourning Again in America
January 16, 2017
Paul Street
How Pure is Your Hate?
Jeffrey St. Clair - Alexander Cockburn
Did the Elites Have Martin Luther King Jr. Killed?
FacebookTwitterGoogle+RedditEmail