Can the Greek People Teach the ECB Economics?

If the European Central Bank does not ease up on its austerity policies, it may push the heavily indebted countries into a downward economic spiral.

by Dean Baker

There is an old maxim that in any bureaucracy people will always rise to the level of their incompetence. This certainly seems to be the case with the European Central Bank (ECB). After totally ignoring the build-up of dangerous housing bubbles in most euro zone countries, as well as the imbalances that supported these bubbles, the ECB now seems intent on punishing the people in many of these countries for its mistakes.

This is the likely result of the policies that it is now pursuing, whether or not this is the intention. The insistence that the heavily indebted countries in the euro zone - Greece, Ireland, Portugal and Spain - pay off their debt in full will inevitably lead to years of high unemployment in these countries and trillions of dollars of lost output throughout the euro zone as a whole. The budget cuts demanded of these countries will force large reductions in pensions and other social supports at a time when macroeconomic policies ensure that few jobs are available.