Monday, September 26, 2011

A new stability pact

In view of the previous post, it should be clearer than ever that the talk of balanced budgets is entirely missing the point (even forgetting for a moment how stupid such rules are in practice). A real stability pact would call governments to account if their current account balances exceeded a certain share of GDP - hey, why not 3%? And by this I mean in either direction - creditor nations and debtor nations would both have to act.

This of course will not happen, because the prevailing ideology is still that financial markets are rational and not prone to the damaging bouts of euphoria and gloom which come close to destroying the Eurozone. The only certainty is that the current approach will fail. What happens after that is anyone's guess.