Monday, September 5, 2011

"The Beatings Must Continue"

From Dr. Krugman - please follow link to original
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The Beatings Must Continue

Oh, my — at first I missed this op-ed by Wolfgang Schaeuble. If you had any doubts about where key figures in Europe are going, this should clear them up:

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.

So, austerity now now now — none of this waiting until recovery is well underway. And never mind concerns about deepening the slump – the confidence fairy will come to our rescue, and anyway, pain is good for the soul.

What’s so striking about all this, from an economist’s point of view, is the absence of anything that sounds like a model. It’s all about virtue and vice, with just the assumption that virtue will be rewarded.

And when the finance minister of Europe’s largest economy thinks and talks like this, at a time when the core euro economies are in a liquidity trap while the peripheral economies are desperately in need of strong external demand to make their austerity programs workable, it’s hard to see what hope there is for the euro project

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