The article described below was published yesterday in Spiegel, a well known German periodical.
Economic historian Niall Ferguson (who typically takes a long term view of economic forces) and economist Nouriel Roubini (who some know as Dr. Doom for his prognostication in 2005 of the housing bust and subsequent financial crisis) have gotten together to argue that the toxic mix of contemporary economic and political forces could generate both economic and political chaos for Europe. They suggest a variety of steps that they believe could both resolve the unstable conflicts presently in existence and be palatable to all stakeholders, if they desire to sustain (or expand) the integration of Europe. In brief there recommendations are as follows:
1. Banks should be recapitalized by direct (rather than indirect) means – similar to the TARP program in the U.S.
2. A deposit insurance program should be constructed – similar to the FDIC program in the US
3. Funding of 1 and 2 should be through means that minimize moral hazard burdens for tax-payers and avoid the creation of “too-big-to-fail” institutions.
4. Fiscal austerity should be built into a long run plan but should not be implemented in the current economic context.
5. Economic growth needs to be the number one priority.
6. Public policy should employ all available tools – monetary, fiscal, barrier reducing, and infrastructure increasing – to boost income and consumption.
The article begins as below. For the full piece, follow the link at the bottom of this posting.
The Perils of Ignoring History: This Time, Europe Really Is on the Brink
—————————————————————–The European Union was created to avoid repeating the disasters of the 1930s, but Germany, of all countries, has failed to learn from history. As the euro crisis escalates, Berlin should remember how the banking crisis of 1931 contributed to the breakdown of democracy across Europe. Action is urgently needed to stop history from repeating itself.