The European financial establishment refuses to steer clear of the oncoming train

Wolfgang Schaeuble, the finance minister of Germany, is standing pat on his insistence that fiscal austerity throughout Europe cannot wait. It must go forward immediately, despite what he acknowledges may be “short-term pain:”

Governments in and beyond the eurozone need not just to commit to fiscal consolidation and improved competitiveness – they need to start delivering on these now.

There is some concern that fiscal consolidation, a smaller public sector and more flexible labour markets could undermine demand in these countries in the short term. I am not convinced that this is a foregone conclusion, but even if it were, there is a trade-off between short-term pain and long-term gain. An increase in consumer and investor confidence and a shortening of unemployment lines will in the medium term cancel out any short-term dip in consumption.

And the European Central Bank (ECB), headed by Jean Claude Trichet, has still not reversed interest rate hikes engineered months ago, despite stalled or negative growth throughout the EU. Inflation is the least of their worries. What are they waiting for? (A more detailed explanation of the ECB’s errors and the associated risks authored by economist, Dean Baker, can be found here.)

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About Guy N. Texas

Guy N. Texas is the pen name of a lawyer living in Dallas, who is now a liberal. He was once conservative, but this word has so morphed in meaning that he can no longer call himself that in good conscience. Guy has no political aspirations. He speaks only for himself.
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