The Eurozone Demands Pain
It wasn’t long into this New Year’s Day when I came across more startlingly articles on the Euro Zone crisis. I’ll get right into the excerpts from the Guardian:
“Eurozone negotiations are taking place against the background of a darkening economic outlook. Spain’s new government unveiled drastic spending cuts on Friday, making its contribution to a bout of collective belt-tightening that will squeeze growth across Europe. Many City economists are expecting a recession in the eurozone in 2012. Citigroup, for example, expects GDP across the 17-member area to contract by 1.2%, with much sharper falls in the hardest-hit countries.”
Yet again, Europe is having another patient in Spain subject itself to some sort of Medieval bloodletting. This as the patient can see the life seeping out of Portugal and Greece with each passing day from this remedy the IMF, but more so European policy makers, insist will work. This disaster in the eurozone continues to build with each misdiagnosis of the crisis (that Southern European are paid too well when, in fact, Portugal‘s minimum wage is less than half of France‘s). It builds with each austerity package that wounds the economy and thus its ability to finance debt. It builds with each summit kicking the grenade down the road, kicking it closer and closer to a weapons dump that will maximize the explosion.
But back to the article:
“Erik Britton, director of City consultancy Fathom, characterised the current approach as ‘muddling through’. ‘This strategy , the muddling through strategy, is one that can buy another few months, maybe even a year, but it’s not a solution.’
He predicted that eurozone governments would eventually have to write off a large proportion of the debts of several countries, including Greece and Italy, and bail out their crisis-hit banks.”
So the “confidence” the austerity was supposed to inspire will actually lead to what loses confidence: the failure to repay debt by writing off debts owed by Italy, Greece, Portugal and Ireland. But what Erik Britton suggests is that after years of making Southern Europeans pay for the crisis, European leaders will simply switch the burden of pain to the people of Northern Europe who will be bailing out bankers once again. At this point they’re kicking an artillery shell down the road.