Austerity is not the answer for Europe’s debtor nations. The UK has gone that route and the economy has tanked. Others, as noted below in an article in the New York Times, are destroying themselves. And Why are we all doing this when the physical ability to produce is still there? Eichengreen’s suggestion makes sense. It could be combined with writing off some of the bad loans held by banks as I have suggested before. We are killing ourselves at the altar of paper.
“In Greece, the central bank is forecasting that unemployment will hit 16.5 percent this year. Support for the Socialist government of George Papandreou and his reforms continues to erode, with a recent poll showing that just 35 percent of Greeks would vote for him again.
In Ireland, it now seems that the banks whose bad lending brought the country to its knees may need even more than the 35 billion euros already allocated to them by the European Commission and the I.M.F.
Finally, in Portugal, after four cost-cutting austerity packages that have covered the usual areas like pension reform, spending reductions and tax increases, the people have had enough.
The lesson is clear, argues Barry Eichengreen, an economist and an expert on the euro and its origins — sustained austerity that is not supplemented by some form of debt reduction in which the holders of bank or government debt are forced to take a loss is not just unworkable but unfair as well.
“When you reduce the incomes of the people who service the debt but you don’t reduce the incomes of the bondholders, you won’t reduce the level of debt,” he said. “Some might call it shared sacrifice, but some people are not sharing.”