Monday, August 25, 2014

Suicide Bombing the Euro Economy

Via Brad Delong:

Paul de Grauewe: "[European policymakers] are doing everything they can... stop recovery taking off, so they should not be surprised if there is in fact no take-off. It is balanced-budget fundamentalism, and it has become religious. We know from the 1930s that if everybody is trying to pay off debt and the government then deleverages at the same time, the result is a downward spiral. The rigidities in the European economy have been there for ages. They have absolutely nothing to do with the problem we face today...

Is this a purely irrational religion, or is it one of those that has big benefits for some, even if the involved countries and the peninsula suffer? I'll bet on the latter, with the starring role, as usual going to the usual rentier suspects. Inflation erodes assets, especially debt assets. So it's good for debtors and bad for creditors. Creditors being mainly wealthy, and debtors being mainly poor, guess who has the bigger seat at the conference table?