European Suicide
Not that he needs it, but I feel I must advertise this New York Times editorial by Paul Krugman, on the looming European catastrophe. As usual, it is masterly written. I just want to add one remark: The economic suicide of Europe happens because of ideological blindness. We are trapped in a doctrinal approach to economics and economic policy. There is nothing you can do against fundamentalism.
Should the title of this blog change from Gloomy to Desperate?
Categories: EMU Crisis, Fiscal Policy, Monetary Policy
austerity, Berlin View, ECB, Economic policy, EMU Crisis, fiscal compact, Germany, Krugman, Spain
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Keynes Blog
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I dunno, man. I agree with your argument that the SGP needs to be changed. But Krugman seems to argue that it should just be ignored. That, to me, seems like kind of a dangerous idea.
I’m also not sure that monetary expansion will stimulate growth. Given the implementation schedule of Basel III regulations, I really don’t think that the balance-sheet channel will work. Given the way the European loan market looks these days, I’m not entirely convinced that the credit channel will work either. I can see how inflation might induce spending, but can also see how savvy Germans would just buy inflation-linked securities. So, that might not work either. If all these channels are indeed closed, then I don’t really see how monetary expansion can be reasonably expected to induce the effects he desires.