“We knew at the fund from the very beginning that this program was impossible to be implemented because we didn’t have any — any — successful example,” said Panagiotis Roumeliotis
By Paul Krugman
On my desk, right next to my gnome of Zurich*, I have a stuffed emu, picked up on a visit to Australia many years ago. That’s what they used to call the euro project — Economic and Monetary Union. And for a while, until the euro came into existence and created the illusion of success, many were the cartoons depicting the project as a hapless ,flightless bird, related to the ostrich.
I think we need to bring that image back, because the head-in-the-sand factor is getting amazing.
First, Greece, where it has been obvious for a very long time, indeed right from the beginning, that the program had no chance of working:
“We knew at the fund from the very beginning that this program was impossible to be implemented because we didn’t have any — any — successful example,” said Panagiotis Roumeliotis, a vice chairman at Piraeus Bank and a former finance minister who until January was Greece’s representative to the International Monetary Fund. Because Greece is in the euro zone, he noted, the nation cannot devalue its currency to help improve its competitiveness as other countries subject to I.M.F. interventions almost always are encouraged to do.
At the same time, Mr. Roumeliotis and others note, the troika underestimated the negative effect its medicine would have on the Greek economy.
Yah think? Yet even now the rhetoric is all about how the Greeks aren’t trying hard enough.
Then there’s Spain, which isn’t Greece but nonetheless lacks a plausible path back to a sustainable position. Yet the official line is now that the program is fine, and it’s all the fault of those gnomes:
Germany on Tuesday threw its considerable weight behind the reform and austerity programme of the Spanish government, in the face of a continuing surge in the cost of borrowing for Madrid, and strong protests against its spending cuts.
A joint statement by Wolfgang Schäuble, German finance minister, and Luis de Guindos, Spanish economy minister, condemned the high interest rates demanded for the sale of Spanish bonds as failing to reflect “the fundamentals of the Spanish economy, its growth potential and the sustainability of its public debt”.
How about putting their money — or actually the ECB’s money — where their mouths are? I mean, if the markets are all wrong and Spanish debt is safe, surely the obvious thing is to have the ECB step up by buying those bonds until the markets see reason. Right?
I guess not.
Or maybe head in the sand isn’t the right metaphor — maybe it’s deer in the headlights, with policy makers paralyzed as it all goes wrong. Anyway, I’m withTim Duy: I’m losing confidence in European leaders, which is hard because I had hardly any confidence to start with.
* A phrase coined by a long-ago British chancellor of the exchequer, to condemn speculators. It was silly, of course: everyone knows that the gnomes actually live in Basel.