More Eurozone Stoof - Part 3.14159

I really lost count how many Eurozone posts I have made in the past few weeks or months. It is not a lot, but the frequency is increasing simply because I think the Eurozone is about to blow us all to kingdom come. Here is another Project Syndicate post which puts the problem (and solution) in a very nice way:

Reforming social-welfare benefits is the only permanent solution to Europe’s crisis. One hopes that, with the help of national governments, the European Central Bank, the International Monetary Fund, and the European Financial Stability Facility, the holes in the sovereign-debt-funding dike will be temporarily plugged, and that European banks will be recapitalized. But this will work only if structural reforms make these economies far more competitive. They must both lower the tax burden and reduce bloated transfer payments. Too many people are collecting benefits relative to those working and paying taxes.

This only stops short of saying that the lazy and corrupt are piggy-backing and free-loading off those who are working hard and paying taxes. Sounds like another country I know that begins with M. And I think that Michael Boskin is being too kind here:

Some experts, such as former ECB President Jean-Claude Trichet, argue that fiscal consolidation would be expansionary. Specifically, it would boost confidence, which would lower interest rates and offset any direct effect on demand, as occurred in Ireland and Denmark in the 1980’s. But that is less likely now, as many countries are undertaking fiscal consolidation simultaneously, non-sovereign interest rates are already low, and monetary union prevents the most troubled countries in the eurozone – Portugal, Italy, Ireland, Greece, and Spain – from devaluing their way to competitiveness.

I guess he can't be too blunt about the former ECB President. How can fiscal consolidation be expansionary? The private sector is not spending, the government is not spending, the consumers have no jobs, so they have no money to spend. So who is spending? If no one is spending, how can the economy expand? What is this confidence fairy thing?

If they keep believing in the confidence fairy that is going to make everything OK magically, then we are in for a tough 2012 ahead. 2012 is going to make 2011 look like a walk in the park, and 2011 is the year where three Middle Eastern/North African regimes fell, a tsunami/earthquake/nuclear disaster hit Japan, multiple other earthquakes all over the world, the US debt ceiling circus/comedy/tragedy, the floods in Thailand, and much, much more. Can 2012 be any worse than this? You bet, with the way the Eurozone jokers are acting.

Source: Project Syndicate