World Economy

A shoe shiner in front of a closed shop in Athens (Picture Archives)

The European Crisis Strategy inevitably runs contrary to their economic and political bankruptcy. Proves the economic austerity every day for their failures. Under the acute need to economise in the impoverished southerners broad population groups, economies fall into deep depressions and recessions. Politically, therefore, disappears - not surprisingly - the support for these policies. This leads to the deselection of those governments that they have propagated. This signaled the end of the previous strategy in sight. It is time to ask what would happen to the savings policy.

The concepts are already present for some time. Most recently, Paul Krugman recommended a way to and from the Institute for Macroeconomic Policy Institute (IMK) has already been discussed: declare the emergency, the European Central Bank (ECB) to government bonds from the secondary market purchases, that is from private investors, not only of the States. In fact, the ECB has a mistress of the currency of unlimited funds for this purpose. Therefore, their announcement is absolutely credible. This credibility will mean that the ECB announced the route is not far to go. A bet against a central bank in its domestic currency is hopeless. There is no panic to break out that prices could fall on government bonds, if the ECB insured credible to support the bond market.

That would be a foundation on which could develop the confidence of the markets. Politically, it would also be an act of European cohesion. Rather than be parted from each of the markets in individual countries, as demonstrated with the guarantee against price falls caused by the common central bank has a joint responsibility for the common currency. That this is not only a national but a supra-national context is happening against the backdrop of postwar European history, a historical achievement.

There is evidence of a serious minimalist approach when economists and others fare with national exercises in pathos microeconomic rationality and apparent pseudo-scientific crisis tinker with symptoms such as Target 2 and balances define the crisis as much too narrow sovereign debt crisis. The logic of this effort always leads to the conclusion that monetary union is broken - with considerable economic and political damage.

Gustav A. Horn

heads the union near the Institute of Macroeconomic Research

Here such escalations are preventable if it is decided consistently from the perspective of an overall European economy. The strengthening of the ECB may not be the only step. The euro area needs institutions that address the fundamental problem of economic disparities between Member States. It is these imbalances that divide the community currency currently economically and politically. They are the result of lapses in the individual Member States in which it has failed to meet its inflation targets. There are many causes.

In the deficit countries, were measured to high wage increases in the productivity trend, but also too much government debt in the wake of a generous fiscal policy. Private investors had to be rescued as a result of speculative bubbles with public funds. In the surplus countries, the opposite is true: for low wage increases, an overly restrictive fiscal policy and capital spending have led to the inflation target was missed and the domestic demand was weak.

All of these specific and very far from uniform causes must be corrected in the medium term and long term prevented by preventive action. It therefore requires a policy mix that leads back to the euro area on a stable path. At the same time but in the long term institutional arrangements to be addressed to prevent future crises of this kind.