15 December 2013

Paul Krugman: In Europe, a Repudiation of Austerity Policies

The European Central Bank's rate cut has led to huge tensions, with the executive board split and many German economists protesting. As usual, a lot of the argument is about the perception that those lazy Southern Europeans are getting a free ride.

According to an article published recently in the Financial Times: "A commentary by the chief economist of the financial weekly WirtschaftsWoche called the decision a 'diktat from a new Banca d'Italia, based in Frankfurt.'" Why can't those Italians, etc., pull up their socks the way the Germans did?

What Germans — economists as well as the general public — still don't seem to get is how much Germany's success at emerging from its late-1990s doldrums depended on a somewhat inflationary boom in southern Europe. And they therefore also don't realize how much damage Germany is causing by refusing to allow higher inflation in the euro zone.


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