By John Ballard
It's not called the dismal science for nothing. No matter what economists understand about their subject political types and their followers -- like macho lost husbands driving miles in the wrong direction, ignoring the wife's pleas to stop and ask directions -- continue stubborn habits making matters worse.
The Roubini stable offers this collection.
- The real results concern aid for the banks. Necessary actions to improve bank liquidity, but ineffective without broader policy action.
- Approval for more and deeper austerity policies. In fact, locking EU fiscal policy into a straitjacket as a recession looms ahead. Europe�s leaders have learned nothing from 1929-32, and nothing from the great progress in economic theory since then. This could have horrific results! Future generations will not understand.
- They hope (again) to get more aid from the BRICs (Brazil, Russia, India, China) via the IMF. This is delusional. The BRICs did nothing earlier this year, when hopes were higher for effective EU action AND the BRICs were stronger. Now all four BRICs have serious problems at home; substantial help for the rich folks of Europe from the poorer BRICs seems unlikely.
- Most important, they have done nothing to address the imbalances within the EMU that caused the crisis � and drive the current downturn.
This is, as many have said, like the Captain of the Titanic convening a seminar on metallurgy after they hit the iceberg.
Doing The Berlin Brake Dance
What Wolfgang [Munchau] is getting at here is that the core of the proposed EU agreement is the introduction of the so called �balanced budget amendment� as a binding principle across all the eventual signitaries. Naturally Germany already has this amendment in place. According to Wikipedia: �In 2009 Germany�s constitution was amended to introduce the Schuldenbremse (�debt brake�), a balanced budget provision. This will apply to both the federal government and the L�er (states). From 2016 onwards the federal government will be forbidden to run a deficit of more than 0.35% of GDP. From 2020, the states will not be permitted to run any deficit at all. The Basic Law permits an exception to be made for emergencies such as a natural disaster or severe economic crisis�
Hence perhaps the most worrying thing about last weeks agreement to agree was that each and every one of the 26 countries concerned has stated that �I will stop beating my wife, I promise I will, and soon�, but understands what this means in their own special way.
There are lessons here for anyone paying attention.
Am I alone thinking that these discussions are the same as the gridlock here? Entrenched, tight-fisted banker types and their clients really imagine that if they squeeze hard enough they cn get a fw more drops of juice out of an already used-up orange. Proposals for a federal balanced budget agreement (indeed a proposal to amend the Constitution to that effect) are supposed to resolve all the problems by shoving them out to the states.
All this in the face of a looming global recession, increased scar-tissue at home and a steady erosion of our collective net worth. What kind of madness is this?