Dean Baker: Will an Incompetent European Central Bank Be Allowed to Wreck the World Economy?

[marmar]

Published on Tuesday, December 6, 2011 by The Guardian/UK
Will an Incompetent European Central Bank Be Allowed to Wreck the World Economy?

by Dean Baker


The world is eagerly waiting to see if the European Central Bank (ECB) will take the steps needed to save the euro. Specifically, is the ECB prepared to act as a central bank and guarantee the sovereign debt of the countries in the eurozone as the lender of last resort ordinarily does in a crisis?

If not, there is little doubt what the outcome will be. The austerity being imposed on country after country will slow GDP growth and throw workers out of jobs. Higher unemployment will worsen deficits, since it means less tax revenue coming in and more unemployment benefits and other transfers being paid out. Higher deficits will cause investors to worry about the solvency of the government, leading interest rates to rise.

This gives us the famous downward spiral that already sank Greece's economy and government. It will soon sink Italy and Spain – unless the ECB starts acting like a central bank. The fallout from disorderly defaults from these two countries will cause banks throughout the eurozone to become insolvent, leading to another post Lehman-type freeze-up of the financial system.

The end result will be a second recession and another sharp spike in unemployment, not just in the eurozone, but almost certainly across the globe. The finances and the economies of the eurozone are too intertwined with the rest of the world to envision a meltdown that doesn't also push the rest of the world into recession. At the end of this story, the euro itself is likely to be placed in the dustbin of history, another failed monetary experiment. ................(more)

The complete piece is at: http://www.commondreams.org/view/2011/12/06-2

[dixiegrrrrl]

1. There is no good way out of this mess.

The only question now is WHO will be in charge of a crash diet.
So far, the bankers are.

[Owlet]

4. Exactly so

[Demeter]

2. Absolutely It Will--It Already Has

Next question--will we ever be able to find anything on this "new, improved" site?

[dixiegrrrrl]

5. Seems the Central Bank is not so "incompetent", actually.

Wrecking economies is hard work.

[sendero]

3. "acting like a central bank"

What does that mean? Does it mean what i think it means, PRINT MONEY?

Well,many folks think that is a really bad idea, myself included.

[JDPriestly]

6. The horror of this is that economists, hedge fund managers, bankers and investors are not talking

(or talking far too little) about the human costs of the austerity they are imposing.

What happens to families, to children, to the elderly when austerity means they can't afford heat or shoes or medical care?

Most important, what happens to society?

How long will it take before a "tyrant," a demagogue with easy answers comes forward and fools people into following him or her?

The policies of big business and the government are exacerbating the inevitable discontent of ordinary people whose hopes and dreams are being crushed and will be reduced to rubble and dust because of this economic disaster.

And the people who will suffer the most are the people who had no say in the foolish, greedy decisions that got us where we are.

Divorces. Parents who cannot feed their children abandoning those children. The anguish those parents will face as they decide to walk away. The guilt. The emotional pain.

The grown children who will have to make grotesque choices between caring for their children, keeping themselves going or providing minimal support for their elderly parents.

Those in the upper 1% think they are saints because they hand out turkeys at Thanksgiving and Christmas -- toys for the little ones -- Christmas decorations for the elderly in some assisted living facility funded by their church.

But as they while away their time on the golf course, they remain oblivious to the agony, the everyday misery of the poor -- who are paying the price for the outsourcing and importing that produced the wealth of the 1% and caused economic disaster for everyone else.