{"id":19672,"date":"2012-06-18T12:00:05","date_gmt":"2012-06-18T11:00:05","guid":{"rendered":"http:\/\/www.transcend.org\/tms\/?p=19672"},"modified":"2012-06-11T18:14:52","modified_gmt":"2012-06-11T17:14:52","slug":"another-bank-bailout","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2012\/06\/another-bank-bailout\/","title":{"rendered":"Another Bank Bailout"},"content":{"rendered":"

Oh, wow \u2014 another bank bailout, this time in Spain. Who could have predicted that?<\/em><\/p>\n

The answer, of course, is everybody. In fact, the whole story is starting to feel like a comedy routine: yet again the economy slides, unemployment soars, banks get into trouble, governments rush to the rescue \u2014 but somehow it\u2019s only the banks that get rescued, not the unemployed.<\/p>\n

Just to be clear, Spanish banks did indeed need a bailout. Spain was clearly on the edge of a \u201cdoom loop\u201d \u2014 a well-understood process in which concern about banks\u2019 solvency forces the banks to sell assets, which drives down the prices of those assets, which makes people even more worried about solvency. Governments can stop such doom loops with an infusion of cash; in this case, however, the Spanish government\u2019s own solvency is in question, so the cash had to come from a broader European fund.<\/p>\n

So there\u2019s nothing necessarily wrong with this latest bailout (although a lot depends on the details). What\u2019s striking, however, is that even as European leaders were putting together this rescue, they were signaling strongly that they have no intention of changing the policies that have left almost a quarter of Spain\u2019s workers \u2014 and more than half its young people \u2014 jobless.<\/p>\n

Most notably, last week the European Central Bank declined to cut interest rates. This decision was widely expected, but that shouldn\u2019t blind us to the fact that it was deeply bizarre. Unemployment in the euro area has soared, and all indications are that the Continent is entering a new recession. Meanwhile, inflation is slowing, and market expectations of future inflation<\/a> have plunged. By any of the usual rules of monetary policy, the situation calls for aggressive rate cuts. But the central bank won\u2019t move.<\/p>\n

And that doesn\u2019t even take into account the growing risk of a euro crackup. For years Spain and other troubled European nations have been told that they can only recover through a combination of fiscal austerity and \u201cinternal devaluation,\u201d which basically means cutting wages. It\u2019s now completely clear that this strategy can\u2019t work unless there is strong growth and, yes, a moderate amount of inflation in the European \u201ccore,\u201d mainly Germany \u2014 which supplies an extra reason to keep interest rates low and print lots of money. But the central bank won\u2019t move.<\/p>\n

Meanwhile, senior officials are asserting that austerity and internal devaluation really would work if only people truly believed in their necessity.<\/p>\n

Consider, for example, what J\u00f6rg Asmussen, the German representative on the European Central Bank\u2019s executive board, just said in Latvia, which has become the poster child for supposedly successful austerity. (It used to be Ireland, but the Irish economy keeps refusing to recover). \u201cThe key difference between, say, Latvia and Greece,\u201d Mr. Asmussen said, \u201clies in the degree of national ownership of the adjustment program \u2014 not only by national policy-makers but also by the population itself.\u201d<\/p>\n

Call it the Darth Vader approach to economic policy; Mr. Asmussen is in effect telling the Greeks, \u201cI find your lack of faith disturbing.\u201d<\/p>\n

Oh, and that Latvian success consists of one year of pretty good growth following a Depression-level economic decline over the previous three years. True, 5.5 percent growth is a lot better than nothing. But it\u2019s worth noting that America\u2019s economy grew almost twice that fast \u2014 10.9 percent! \u2014 in 1934, as it rebounded from the worst of the Great Depression. Yet the Depression was far from over.<\/p>\n

Put all of this together and you get a picture of a European policy elite always ready to spring into action to defend the banks, but otherwise completely unwilling to admit that its policies are failing the people the economy is supposed to serve.<\/p>\n

Still, are we much better? America\u2019s near-term outlook isn\u2019t quite as dire as Europe\u2019s, but the Federal Reserve\u2019s own forecasts predict low inflation and very high unemployment for years to come \u2014 precisely the conditions under which the Fed should be leaping into action to boost the economy. But the Fed won\u2019t move.<\/p>\n

What explains this trans-Atlantic paralysis in the face of an ongoing human and economic disaster? Politics is surely part of it \u2014 whatever they may say, Fed officials are clearly intimidated by warnings that any expansionary policy will be seen as coming to the rescue of President Obama. So, too, is a mentality that sees economic pain as somehow redeeming, a mentality that a British journalist once dubbed \u201csado-monetarism.\u201d<\/p>\n

Whatever the deep roots of this paralysis, it\u2019s becoming increasingly clear that it will take utter catastrophe to get any real policy action that goes beyond bank bailouts. But don\u2019t despair: at the rate things are going, especially in Europe, utter catastrophe may be just around the corner.<\/p>\n

A version of this op-ed appeared in print on June 11, 2012, on page A19 of the New York edition with the headline: Another Bank Bailout.<\/em><\/h6>\n

Go to Original \u2013 nytimes.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Oh, wow \u2014 another bank bailout, this time in Spain. Who could have predicted that? The answer, of course, is everybody. In fact, the whole story is starting to feel like a comedy routine: yet again the economy slides, unemployment soars, banks get into trouble, governments rush to the rescue \u2014 but somehow it\u2019s only the banks that get rescued, not the unemployed.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[51],"tags":[],"class_list":["post-19672","post","type-post","status-publish","format-standard","hentry","category-europe"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/19672","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=19672"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/19672\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=19672"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=19672"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=19672"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}