November 11, 2011 · 0 Comments
By Dean Baker:
The NYT outlined the origins of Europe’s sovereign debt crisis in a front page piece. The article leaves out a very important part of the story.
The prolonged downturn has substantially worsened the crisis. High unemployment and slow or negative growth has reduced tax collections and increased transfer payments, making deficits much larger than would otherwise be the case. This could be countered if the European Central Bank (ECB) had pursued more aggressive monetary expansion.
Also, the demands of the ECB that heavily indebted countries adopt harsh austerity programs has slowed growth both in the countries adopted these programs and across Europe. For these reasons, the ECB should be cited as one of the main causes of the crisis.