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Home Publications Blogs Beat the Press The Washington Post Never Heard of the European Central Bank

The Washington Post Never Heard of the European Central Bank

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Sunday, 22 May 2011 08:21

That's what readers of its front page piece on austerity in Spain must conclude. The piece asserts that Spain's government has no choice but to make major cutbacks to the generosity of its welfare state.

This may be true given its situation as member of the euro zone. However, this is an outcome that is being imposed as a result of policy decisions by the European Central Bank (ECB). The ECB, which failed to notice the huge housing bubble in Spain and elsewhere, is deliberately imposing a relatively contractionary policy on the euro zone countries. This is leading to higher unemployment in Spain and other euro zone countries.

The higher unemployment and slower growth resulting from the ECB policy puts more fiscal stress on the Spanish government. The restrictive policies of the ECB are the proximate cause of Spain's fiscal difficulties. The ECB's role in contributing to Spain's financial hardship should have been mentioned in the piece.

Comments (2)Add Comment
...
written by pete, May 22, 2011 5:20
Yes yes more autonomy....why not in the U.S. too? Utah is going on the gold standard....why not European style (state based) health care here too. You go Dean! Almost there....

Oh, ooops...did you wonder whether Spain (Greece) could borrow in pesetas (dracma) if they dropped the Euro. Try again.
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written by Ignacio, May 24, 2011 5:49
Pete wrote:

Oh, ooops...did you wonder whether Spain (Greece) could borrow in pesetas (dracma) if they dropped the Euro. Try again.


At least in neo-pesetas, after the necessary adjustment, we would be able to borrow or, if necessary, park debt in the spanish central bank. In the euro we are having more and more difficult times trying to roll over private and public debt. We have a liquidity problem already. Would it be worsened exiting the euro? For a while the answer would be yes, but then we would be ready to restart and create jobs again.

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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.

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