Tuesday, September 27, 2011

The eurozone: a crisis of policy, not debt

by Mark Weisbrot


September 27, 2011

Three months ago, I wrote here about the risks that the European authorities were posing to the US economy and asked what the US government was going to do about it. It was clear at that time that "the Troika" – the European Commission, European Central Bank (ECB) and the International Monetary Fund (IMF) – was once again playing a dangerous game of brinksmanship at that time with the government of Greece. They were trying to force the Greek parliament to adopt measures that would further shrink the Greek economy and therefore make both their economic situation and their debt problem worse, while inflicting more pain on the Greek electorate. The threat from the Troika was putting the whole European financial system at risk, since it raised the prospect of a chaotic, unilateral Greek default.

My hope was that someone in the US Congress would step up to the plate and try to hold the US Treasury Department accountable. Treasury is still overwhelmingly the biggest power within the IMF – in fact, it has dominated the fund for the past six decades. Since the IMF is one of the three key decision-makers in Europe, the US government could at least use this avenue of influence to prevent them from making things worse there. And since that crisis in June, the Troika has also played a similar game of chicken with Italy – a country with more than five times the sovereign debt of Greece.


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