Date: Tuesday 26 Jun 2012
Nobel-Prize in Economics winner Paul Krugman feels that European authorities have the power to stop the current crisis, but that they are shirking their responsibility to use that power.
In an op-ed article in The New York Times titled “The Great Abdication”, Krugman makes a comparison between the banking crisis in Austria in 1931 and the current events unfolding with Spain’s financial sector bailout. He believes that “Western nations have the resources they need to avoid catastrophe” and that we know a lot more “about how great depressions happen and how to end them”, but his warning is clear: “Knowledge and resources do no good if those who possess them refuse to use them.”
Just as happened in 1931 with Austria, Spain’s rescue of its banks is now putting its own solvency in doubt. For Krugman, it seems “obvious” that European creditor nations should be stepping in to take on some of the financial risks and shore up the system, something that is a “small consideration”, he says, if we take into account that “the very survival of the euro is at stake.”
Yet the Nobel-Prize winner notes that Europe side-stepped the issue and threw loans at Spain telling the southern European country to bail out its own banks. “It took financial markets no time at all to figure out that this solved nothing, that it just put Spain’s government more deeply in debt. And the European crisis is now deeper than ever.”
In Krugman’s opinion, it is precisely this “policy abdication” that is the biggest threat. “The fundamentals of the world economy aren’t, in themselves, all that scary; it’s the almost universal abdication of responsibility that fills me, and many other economists, with a growing sense of dread,” Krugman concludes.
Trading the Forex Market? Visit FXmania.com to get advanced infomation about currencies and the Foreign Exchange Market.
or share it with one of these popular networks:
You are here: news