Friday, May 18, 2012

The impossibility of austerity

One of the best pieces I've read on the Southern Europe debt crisis: EconoMonitor : EconoMonitor » Europe’s Depressing Prospects: Two Reasons Why Spain Will Leave the Euro

The following (a quote from Ambrose Evans-Pritchard) is particularly eloquent:

Berlin seems to think it can lock in a current account surplus with Club Med in perpetuity. Clearly, such as an arrangement is mathematically impossible within a currency union – unless Germany is willing to offset the surplus with flows of money for ever, either through fiscal transfers or loans or investment. These flows have been cut off.

So simple, and yet so difficult for many powerful people to grasp.

I still think Germany and the EU powers that be will blink first. But if they don't change course soon this will be a catastrophe.