The NYT Goes Pollyanna on Europe

The New York Times succumbs to the lure of short term happiness in their latest article on the ongoing European self-inflicted Depression, in which the most recent half-measures to contain the crisis are applauded as a solution.

Don't believe it. The European Central Bank refuses to do what a "normal" central bank would do - buy up the debt of endangered governments like Italy and Spain in exchange for Euros, much as the Fed has done in the US since 2008 in exchange for dollars. Instead of buying the bonds on their own account the ECB is lending money to Euro zone banks to buy the bonds themselves. The result is even worse looking balance sheets for the already shaky banks, and a clear limit to how long this can continue given the finite size of the European Stabilization Fund. Even though bond markets are stabilized for the moment, they can't stay that way once the money runs out.

And it will run out. Not only have the Germans refused to enlarge the fund beyond what is already agreed but they are insisting on a level of fiscal austerity on the part of Euro zone governments that virtually guarantees an economic downturn and further large deficits. Insisting on automatic budget cuts in response puts a downward spiral on autopilot.

Even more problematic is what the financial sector lords in Germany call a "lack of political will" to "do what is needed" to control fiscal deficits. What rot. Rich bankers think it is perfectly OK to insist on economic policies that will throw people out of work for a decade and that in reality can only be enforced at the point of a gun. It isn't going to happen in any democratic way. Greeks - however guilty their leaders may be of causing this situation in the first place - won't and shouldn't put up with destroying the lives of their middle and working classes on the altar of solidarity with German monetary policy. Spain already has unemployment greater than 20% and the downturn is only just starting. When that figure approaches 30% can there be any doubt that the government should do whatever is needed to ensure their citizens don't starve? For a little context, remember that here in the US we considered an unemployment rate of only 10% bad enough to guarantee an electoral victory for the Republicans in 2012.

I can't imagine that a democratic country would fail to see a major political party call for an end to such a disastrous course of action long before balance sheets are balanced to the EU's satisfaction. Nor should they. Leaving the Euro has costs. It won't be long before the costs of staying will be bigger and more widespread. If the Germans can't see that they should bear some responsibility (and yes, some of the cost) for fixing the situation in return for the profits earned on a decade long export boom to the now-endangered "peripheral" countries in the EU then they are going to share in the Depression that results.

So will we. Lets hope it doesn't happen before November, or we may join them in chasing arbitrary and pointless deficit goalposts down a rabbit hole.