“What could Europe be doing differently? From early on in the crisis, critics like me urged a three-part response. First, ECB intervention to stabilize borrowing costs. Second, aggressive monetary and fiscal expansion in the core, to ease the process of internal adjustment. Third, a softening of austerity demands on the periphery — not zero austerity, but less, so that the human costs would be less. We eventually got part 1, more or less — but nothing on parts 2 and 3.”
“And European officials remain in deep denial about the fundamentals of the situation. They continue to define the problem as one of fiscal profligacy, which is only part of the story even for Greece, and none of the story elsewhere.
They keep declaring success for austerity and internal devaluation, using any excuse at hand: a spurious surge in measured Irish productivity becomes evidence that internal devaluation is working, the decline in bond yields following ECB intervention is proclaimed as a vindication of austerity.”
“So that’s where we are. And it’s hard to envisage a happy ending.”
Yeah, yeah, tell us something we don’t know…
Previously: Why Ajai Chopra’s Sad-Eyed Was So Sad