Saturday, February 20, 2010

And yet, PIGS might fly...

Simon Johnson has some tricky questions for aspirant ECB head honcho Axel Weber. My favorite is this one:

"German officials are keen to criticize the southern periphery of the eurozone, but let’s face it – eurozone monetary policy was highly procyclical (exaggerating the boom and the bust, e.g., in Spain), and regulators looked the other way as northern/core banks extended credit to the Mediterranean and East European neighbors.  The upside benefited German exporters; the downside is now being laid entirely at the door of “profligate” nations.  Is this entirely fair and reasonable?"

Not to imply the Greeks are blameless, but where was the hot money pushing up Southern trade deficits coming from? Or, put another way, which large surplus-running European country has a penchant for Mediterranean property? As any decent economic textbook points out, 'every purchase is a sale'.