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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?

  1. April 16, 2012 at 7:54 pm

    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.

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