Tag Archives: Krugman

Who loses in Europe?

Alexis Tsipras is the leader of Syriza Foto: Joanna/Wikipedia Commons

It may very well possible that Greece and not Germany who is holding with the best cards when it soon is to be decided what happens to the euro.

Marshall Auerbach writes in a guest post on the blog to Yanis Varoufakis that:

Alexis Tsipras is a good man. At least he’s a very good poker player. He hasn’t yet capitulated to this massive orchestrated pressure and made it clear up front in the Wall Street Journal Germany that there are options for the Greek people which the Germans won’t like: He is, in short, the first Greek politician to use the his country’s leverage over creditors.

Furthermore, it follows that:

The German response so far? “Oops. This guy is blackmailing us. What shall we do?” Because Germany as a creditor nation faces huge losses if the entire banking system starts to come under pressure, to say nothing of the end of their vaunted “wirtschaftwunder” as the entire eurozone implodes. Greece, by contrast, has already experienced 5 years of unremitting economic austerity. The country has been virtually reduced to the state of a barter economy. What has it got to lose at this juncture by refusing to roll over to the Troika?

I believe that the austerity line now being taken in Europe to rescue the euro is a recipe for economic decline. An economic downturn that primarily will affect people who do not sit at the top of the social pyramid.

Nobel Prize winner in economics, Paul Krugman, writes on his blog:

So Japan, which is spending heavily for post-tsunami reconstruction, is growing quite fast, while Italy, which is imposing austerity measures, is shrinking almost equally fast.

I think Europe and the somewhat the United States is about to make the same mistake as when all countries were to return to the gold standard after the First World War. The policy led to mass unemployment and poverty. About this parity policy the  Norwegian Encyclopedia says:

University economists and others warned against the parity policy, because deflation would cause bankruptcies and major restructuring difficulties for businesses, while the Central bank director-Rygg claimed that the parity line was both morally right and necessary to maintain international confidence in the Norwegian krone. (my translation)

Is there anyone other than me who recognizes the moral politics rather than economic reality as the foundation of what is happening in Europe now?