Monday, September 5, 2011

Schäuble: Bankrupt

Amazing.  Schäuble’s opinion piece in the FT is titled “Why austerity is only cure for the eurozone”, and his argument is
Piling on more debt now will stunt rather than stimulate growth in the long run. Governments in and beyond the eurozone need not just to commit to fiscal consolidation and improved competitiveness – they need to start delivering on these now.
There is some concern that fiscal consolidation, a smaller public sector and more flexible labour markets could undermine demand in these countries in the short term. I am not convinced that this is a foregone conclusion, but even if it were, there is a trade-off between short-term pain and long-term gain. An increase in consumer and investor confidence and a shortening of unemployment lines will in the medium term cancel out any short-term dip in consumption.
Cutting employment and income will increase confidence in future employment and income—did I hear that right?  That must be why there is such a positive market reaction every time a new round of statistics points toward contraction.

And, incidentally, how are all the world’s governments going to simultaneously increase competitiveness?

It’s unfortunate, to put it mildly, that our economic futures depend on people like this.


Luis H Arroyo said...

yes,really. Sinister personage.

ProGrowthLiberal said...

Having seen the Star Wars marathon yesterday, I propose we start exporting Earth's goods to the rest of the Republic! Oh wait - they have cut NASA spending. Never mind!

ProGrowthLiberal said...

After I read his oped, I decided to check with the ECB as to what has been happening to German long-term interest rates. If they were accelerating then maybe he has a point. Hmm, the interest rate dropped from 3.34% in April to only 2.74% in July. OK, no point.