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Home Publications Blogs Beat the Press The European Central Bank Is Strangling the Eurozone

The European Central Bank Is Strangling the Eurozone

Wednesday, 28 April 2010 04:29

It would have been helpful to point this fact out in an article reporting on the Greek and eurozone financial crisis. While Greece did have serious fiscal problems prior to the economic crisis, the other countries now facing difficulties were not similarly troubled. Spain, the most important of the troubled countries, actually was running surpluses prior to the crisis. The difficulties now facing these countries is largely the result of the economic downturn, which has seriously worsened their fiscal situation.

The European Central Bank (ECB) could make the money available to these countries to sustain their economies through this downturn. (They would print it.) The ECB has opted not to go this route because of peculiar superstititions about inflation. It would be worth pointing out to readers that this crisis is largely the result of superstitions by Europe's central bankers, not fundamental economic problems.

Comments (8)Add Comment
Tax Scoundrels!
written by richard, April 28, 2010 8:13
Why should the European Central Bank print money to bail the governements of countries where the citizenry are notorious for not paying taxes?


Fix the corruption and the rest will take care of itself. The same holds true in this country!
written by izzatzo, April 28, 2010 8:33
This thing with fiat money,
Ridden with superstition,
That inflation trumps deflation,
As the greater evil,
Embedded in the lore,
That printing more money,
Causes disintegration,
Of everything real.

As Milton Friedman said,
Keep the money supply growing,
At the same rate of output,
That yields full employment.
So when velocity falls,
With a savings glut,
Pump up M with cash,
To finance a fiscal,
Rise from ruin and rut.
written by scathew, April 28, 2010 10:33
While I can't argue one way or another about the fact that these countries are "tax scoundrels", the issue with letting them fail is it can take down the entire Eurozone.

So, saying, "fix the corruption" (ie: do nothing until the corruption is fixed) is akin to holding your ground in a crosswalk as a car barrels toward you because, "you have right of way" - a bit of insanity.

In short, I don't argue that those responsible need to be held responsible ultimately, just that in the mean time you've got to get the hell off the crosswalk.
Back to the Gold Standard for these countries
written by leo, April 28, 2010 12:57
It looks like the tough love Greece is getting is nothing but a requirement to return to the modern equivalent of the Gold Standard.
written by Ron Alley, April 28, 2010 1:54
Greece is unable print euros to pay off its bonds. The United States could print dollars to pay off its bonds, but the State of California cannot print dollars. So Greece (perhaps Spain as well) is more analogous to our states than to sovereign nations outside the European Union. Apparently, the EU lacks a mechanism and an obligation to provide assistance Greece. I wonder what might happen if California were to default on its bonds.
written by floccina, April 28, 2010 2:57
"Spain, the most important of the troubled countries, actually was running surpluses prior to the crisis."

Do they have a property tax in Spain? They had a huge housing bubble, that could explains the surplus. If the states of the USA had seen the bubble they would have run huge surpluses.
written by diesel, April 28, 2010 10:52
Ron, if "California were to default on its bonds", former governor Reagan would rise up from his grave singing.

Come to think of it, according to his faithful legions he already has risen from the grave and is sitting somewhere on the right hand of the Lord (whatever that means).
written by richard, April 28, 2010 10:55
I think that when California defaults on its bonds, the bond holders, whoever they may be, will lose their investment, unless of course the bonds are hedged through some derivative. In which case, the insurer will lose their money, and if the insurer doesn't have the money, and it is a too big to fail company, then the tax payers will foot the bill once again.

So back to the subject of this blog, Greece, who holds the debt for Greece? The European Central Bank?

@scathew, I suppose you are right! Although I try to see what the root of problems are, as it is there I believe the remedies must found. Sure, I can give you a pill for your high blood pressure, but if you don't lay off the salt and fat,and get some exercise, you are still going to die. The PIIGS driving the speeding car are drunk with credit, and corruption, it is time to call in MADD. :-)))

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.