Things are getting worse every day, even when “relatively good” reforms are announced. Spain is as bad as possible: the risk premium reached some days ago the psychological barrier of 600 points, the Spanish government is selling debt bonds close to 7% and the unemployment rate is supposed to remain this way until the end of 2013.
Meanwhile, for the Spanish and German governemnt, the only one solution seems to be cutbacks on Government Spending and a sharp fall on wages. That’s pretty weird because “Your spending is my income and my spending is your income”, and if we reduce this process that means an important fall on Aggregate Demand.
It’s utterly true that Spain needs to recover the competitiveness, but that’s not the way. Keynes said: “the boom, not the slump, is the time for austerity”. So, we should use other tools to handle this crisis. In my view, our tools are: inflation, cutbacks, taxes, spending and the ECB – to be honest, I don’t trust the last one.
We can use inflation to recover the competitiveness in the countries of the periphery; cutbacks via political layoffs; taxes on the highest-earnings citizens and on highly leveraged institutions, included banks; government spending for sustaining an economy where the private sector is losing grip; and the ECB should purchase government bonds to subserve the whole process and keep the calm in markets.
The economic theory advised about the problems of the Euro but the most of politicians and economists refused to hear what “The Optimum Currency Area” had to tell us. It’s a harsh story, but fascinating too. So, it’s worth to be told.
There are solutions, no doubt, for the so-sought problems but we need honest and hardworking politicians, and brilliant economists – something really difficult to find nowadays.