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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: JohnM who wrote (259354)	8/29/2014 11:19:02 AM
From: JohnM	Read Replies (3) \| Respond to of 541477

Krugman on German economic policy and southern Europe. ------------------------------------- Germany’s Sin August 29, 2014 9:16 am Simon Wren-Lewis has two very good posts about the European situation, first laying out the problem, then taking on those who don’t get it. I just want to add a bit to one of his key points: the impossibility of a resolution unless Germany accepts higher inflation. In Germany, there’s a strong tendency to moralize, with appeals to the country’s own recent economic history. We pulled ourselves out of our late 90s doldrums, the Germans say, so why can’t Southern Europe do the same? But a key part of the answer is that Southern Europe now faces a much less favorable environment than Germany did then — and Germany is the reason why. Look at core inflation (excluding energy, food, alcohol, and tobacco). During the years when Germany was gaining competitiveness, euro area inflation was running at around 2 percent, and inflation in Southern Europe was running considerably higher. So Germany could gain competitiveness simply by having lowish inflation — no need to actually deflate. But these days German inflation is only one percent, euro area inflation is lower, and the only way for Southern Europe to gain ground is to have zero or negative inflation: Credit Eurostat This makes the adjustment problem incredibly difficult, both because wages are downwardly sticky and because deflation worsens the debt burden. Add onto this the fact that the eurozone as a whole remains depressed thanks to fiscal austerity and inadequate monetary expansion, and Germany is in effect demanding that Spain and others accomplish a task vastly harder than the Germans themselves had to achieve. And the worst of it is that there’s no sign that Berlin understands, or is willing to understand, this reality. And if the euro fails, that refusal to think clearly will be the fundamental cause.

To: JohnM who wrote (259354)	8/29/2014 11:53:20 AM
From: Steve Lokness	Read Replies (1) \| Respond to of 541477

<<<< to stand up and say that austerity is killing the Continent’s economic prospects >>>> Krugman is really on a crusade here isn't he. It has become like a religious thing to him. Keynes; When my information changes, I alter my conclusions. What do you do, sir?