As the signs of social unrest continue to grow in the southern
peripheries of Europe, highlighted again by the over night action in
Spain, I thought it was timely to take a step back from the day-to-day
and re-assess exactly what we are witnessing in the Eurozone from the
longer macro-view.
If you’ve been reading my near-daily pontifications about Europe for any length of time you should be aware that I consider the policy approach being taken in the Eurozone to be the makings of a real disaster. I have been accused by some of being anti-austerity but that isn’t my real issue with the policy at all. My major concerns has been that policy targets of internal devaluation and export driven recovery in the absence of debt forgiveness on a near-contintent wide scale will fail because:
a ) the initial outcome will be a rapid decline in industrial production and national incomes which mean existing debts will become unserviceable
b ) external surpluses require a counter-party external deficit
c ) structural adjustments require investment
So basically, the three targeted outcomes for the existing policy a) service existing debts, b) lower government deficits c) become export competitive are incompatible because the expectation that falling internal demand will quickly be replaced export driven production is a form of utopian economic fantasy.
Over the last two years Greece has been held up as a ‘outlier’ for what should occur but the reality is, as Spain and Portugal are now demonstrating, that this outcome is the most likely and, as I have been discussing , completely predictable.
Read more: http://www.macrobusiness.com.au/2012/09/in-europe-its-debt-vs-jobs/
If you’ve been reading my near-daily pontifications about Europe for any length of time you should be aware that I consider the policy approach being taken in the Eurozone to be the makings of a real disaster. I have been accused by some of being anti-austerity but that isn’t my real issue with the policy at all. My major concerns has been that policy targets of internal devaluation and export driven recovery in the absence of debt forgiveness on a near-contintent wide scale will fail because:
a ) the initial outcome will be a rapid decline in industrial production and national incomes which mean existing debts will become unserviceable
b ) external surpluses require a counter-party external deficit
c ) structural adjustments require investment
So basically, the three targeted outcomes for the existing policy a) service existing debts, b) lower government deficits c) become export competitive are incompatible because the expectation that falling internal demand will quickly be replaced export driven production is a form of utopian economic fantasy.
Over the last two years Greece has been held up as a ‘outlier’ for what should occur but the reality is, as Spain and Portugal are now demonstrating, that this outcome is the most likely and, as I have been discussing , completely predictable.
Read more: http://www.macrobusiness.com.au/2012/09/in-europe-its-debt-vs-jobs/
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