Wednesday, June 27, 2012

Europe's Deficit Hawks

Paul Krugman explains how Europe's version of "deficit hawks" operate:
Spain has troubled banks that desperately need more capital, but the Spanish government...faces questions about its own solvency.

So what should European leaders — who have an overwhelming interest in containing the Spanish crisis — do? It seems obvious that European creditor nations need, one way or another, to assume some of the financial risks facing Spanish banks. No, Germany won’t like it — but with the very survival of the euro at stake, a bit of financial risk should be a small consideration. 

But no. Europe’s “solution” was to lend money to the Spanish government, and tell that government to bail out its own banks. It took financial markets no time at all to figure out that this solved nothing, that it just put Spain’s government more deeply in debt. And the European crisis is now deeper than ever.
Let's get this straight.  The leaders counseling austerity and cutting government spending sink Spain's crisis-ridden economy into deeper bail out the banks.  If ever there was evidence of the fraudulence and class warfare foundations of "austerity economics," this is it.