Europe's Big Troubles...Well There's An Explanation !

Having well in mind the ugly times our country Greece is going

through since nearly half a decade , and looking into Europe's

future , it seems to me that the Old Continent's future doesn't

look bright at all...

  

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Here's how nobelist Paul Krugman analyzed the matter recently :

  

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The United States and Europe have a lot in common .

Both are multicultural and democratic .

Both are immensely wealthy .

Both possess currencies with global reach .

Both unfortunately , experienced giant housing and credit bubbles between 2000 and 2007 , and suffered painful slumps

when the bubbles burst .

  

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Since then , however , policy on the two sides of the Atlantic 

has diverged . In one great economy , officials have shown a stern commitment to fiscal and monetary virtue , making strenuous efforts to balance budgets while remaining vigilant against inflation . In the other , not so much...

And the difference in attitudes is the main reason the two economies are now in so different paths .

Spend-thrift , loose-money America is experiencing a solid recovery . Meanwhile , virtuous Europe is sinking ever deeper into deflationary quicksand . 

Everyone hopes that the new monetary measures announced by the ECB will break the downward spiral , but nobody I know expects them to be enough .

 

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On the US economy  :  No , it's not morning in America , let alone the kind of prosperity we managed during the Clinton years .  

Recovery could and should have come much faster , and family incomes remain well below their pre-crisis levels .

 

 

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Europe on the other hand  , or more precisely the Eurozone , the 18 countries sharing a common - did almost everything wrong .

On the fiscal side , Europe never did much stimulus , and quickly turned to austerity - spending cuts and , to a lesser extent , tax increases - despite high unemployment .

On the monetary side , officials fought the imaginary menace of inflation , and took years to acknowledge that the real threat 

is deflation .

Why they get it so wrong  ?

To some extent , the turn towards austerity reflected  institutional weakness  :  In the US , federal programs like Social Security , Medicare and food stamps helped support states like Florida with especially severe housing busts , whereas European 

nations in similar straits , like Spain , were on their own .

of the situation . In Europe as in America , the excesses that led to the crisis overwhelmingly involved private rather than public debt , with GREECE very much an outlier .

But officials in Berlin and Brussels chose to ignore the evidence in favour of a narrative that placed all the blame on budget deficits , and simultaneously rejected the evidence suggesting -

correctly - that trying to slash deficits in a depressed economy would deepen the depression .

Meanwhile , Europe's central bankers decided to worry about inflation in 2011 and raise interest rates .

Even at the time it was obvious this was foolish - yes , there had been an uptick in headline inflation , but measures of underlying inflation were too low , not too high .

 

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Monetary policy got much better after M.Draghi became president of the ECB in late 2011 .

Indeed mr.Draghi's  heroic efforts to provide liquidity to nations facing speculative attacks almost saved the euro from collapse .

But it is not at all clear that he has the tools to fight off the broader deflationary forces set in motion by years of wrongheaded policy .

Further more , he has to function with one hand tied behind his back , because GERMANY remains adamantly opposed to anything that MIGHT MAKE LIFE EASIER FOR DEBTOR NATIONS .

   

 

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The terrible thing is that Europe's economy was wrecked in the name of responsibility .

True , there have been times when being tough meant reducing deficits and resisting the temptation to print money .

In a depressed economy however , a balanced - budget fetish

and a hard - money obsession are deeply irresponsible .

Not only do they hurt the economy in the short run , they can - and in Europe , have - inflict long - run harm , damaging the economy's potential and driving it into a deflationary trap that's very hard to escape .

Nor was this an innocent mistake .

The thing that strikes me about Europe's archons of austerity , its doyens of deflation , is their self - indulgence .

They felt comfortable , emotionally and politically , demanding sacrifice ( from other people ) at a time when the world needed more spending .

They were all too eager to ignore the evidence THAT THEY WERE WRONG .

And Europe will BE PAYING THE PRICE for their self - indulgence

for years , perhaps DECADES TO COME ......

  

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Well my friends , unfortunately the blogger has never been

more of the opinion , that all what Krugman sited , are so

accurate to the last detail  !!!

 

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