Friday, April 1, 2011

European Analogies to the 1920s and '30s

by Robert Zevin

Huffington Post

March 31, 2011

The slow motion train wreck that is the Eurozone continues to roil bond markets, banks and governments. The complex issues involved cannot be described, yet alone adequately explained, in this short piece but bear with me.

Economic activity is still contracting in much of Europe including the UK, Spain, Portugal, Greece, Iceland, Ireland and, quite possibly, France. To a greater or lesser degree all of these countries are pursuing policies of reduced spending, especially on health, education, welfare and retirement and government employment. In the UK and France this punishment is self-inflicted and relatively mild.

In the remaining countries the cutbacks have been more severe as a result of various bailout terms imposed by European authorities and the International Monetary Fund, or implicitly dictated by the bond market. Or, as the unflinchingly capitalist Financial Times put it in a recent editorial: "European leaders [do not] grasp that states and economies - not senior bondholders - must be kept safe from teetering banks... Instead they are strong-arming the periphery into bailing out savers in the core and the reckless banks they entrusted their savings to."


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