Yves here. I don’t know whether to be relieved or annoyed to see Carmen Reinhart and Ken Rogoff retreat from their pro-austerity stance and endorse debt restructuring, since their prior view (that budget-cutting was necessary and productive) served to justify considerable and unnecessary pain being inflicted on periphery Eurozone countries to preserve the illusion of health of French and German banks.
EVER since the euro crisis erupted in late 2009 Greece has been at or near its heart. It was the first country to receive a bail-out, in May 2010. It was the subject of repeated debate over a possible departure from the single currency (the so-called Grexit) in 2011 and again in 2012.
Far be it from bondholders or banks that caused the debt crisis to be punished for their sins, German 'Wise Men' push for wealth seizure to fund EMU bail-outs.
Two top advisers to German Chancellor Angela Merkel have called for a tax on private wealth and property in eurozone debtor states to force the rich to fund rescue costs, marking a radical new departure for EMU crisis strategy.
THE euro-zone crisis has transitioned from an acute phase to a chronic one. At just this moment the fear that market panic might force one or several economies out of the single currency is low. Yet few analysts believe the euro zone has solved its fundamental problems. In a piece published at Vox EU last week, a cadre of prominent economists made the very sensible point that unless euro-area leaders can agree on the fundamental causes of the crisis, they will struggle to craft long-run fixes.
The Greek stock market is down over 36% year to date; the risk of global contagion in the event of a Greek exit is very real. Ordinarily such a crisis would require a massive coordinated effort from global stakeholders, perhaps directed by the IMF or some other pan-national financial body. But not in this case; the rhetoric is nationally-based and biased without unity of purpose across finance ministries.
PAUL KRUGMAN reminds us that the problems of southern Europe are not caused by past profligacy. He is right in some sense. It is true that according to any off-the-shelf definition of the government budget, a number of these countries (though certainly not all) were doing fine: running surpluses and reducing the debt burden. Yet it isn't clear that a static, cash-basis accounting concept of the government budget is the most reasonable.