Comments on: What a euro growth pact should contain Mon, 18 Apr 2016 14:55:08 +0000 hourly 1 By: tizneh Tue, 08 May 2012 12:05:35 +0000 Another commentator tells us that propping up failing banks is dangerous to economies. He is right. It distorts market signals and creates serious moral hazard which can only be imperfectly contained by regulation. And yet propping up banks may be necessary to keep an economic crisis from worsening.

That, however, is the case with economic medicine in general. Every policy has side effects.

The problem with Mr. Dixon’s analysis is that he expects a single EU policy program to solve both long and short term problems; but it may just not be possible to do that. Every measure directed at a short term problem, like the credit crunch or lack of growth, risks complicating long term issues. Many business commentators have been arguing for liberalizing reforms in the eurozone for a long time, and there is no doubt that they are right. But they are trying to piggy back these reforms on top of the extraordinary measures currently needed to address the worst economic crisis in Europe since World War II. That is far from a wise strategy.

What we will get, if we follow Mr. Dixon’s lead, is not, I fear, a policy properly balanced between growth and structural reform, but a contradictory and ineffective short term policy which allays market fears only for a brief time prior to the terminal crisis and break up of the eurozone.

By: dimitriosz Tue, 08 May 2012 11:45:59 +0000 There is no economic policy, no matter how well thought, that can replace the word TRUST. The European citizens must feel that they are in the same boat. So, we also need a stronger will for a political union based on just rules and the common ideas we share.

By: breezinthru Tue, 08 May 2012 04:48:40 +0000 I hope that your characterization of the ECB is accurate regarding a heavy heart while “spraying cheap money at the banking system”, but I’m doubtful of that… at least not nearly as heavy as it should be.

I recognize that putting failing banks on hospice is terribly dangerous to economies, but so is propping up failing banks. I don’t think recapitalizing failing banks is something that Central Banks or taxpayers should ever do; the cancerous sections of the banking organ must be surgically excised. Flooding them with cash chemo has repeatedly failed to change the prognosis. It serves only to make the rest of the the Eurozone body increasingly frail.

It’s interesting to imagine what the outcome might have been if the 2 trillion Euros that have been dedicated to governments and banks in recent years might have instead been dedicated to citizens, for example, in the form of mortgage principal reductions. The money would have been placed in the hands of responsible people who have jobs; some would save, some would spend the money on goods, Such a strategy might have provided the economic growth for which every one is searching.

To be sure, this strategy would not be a panacea, but it would at least have some chance of success. Bailing out banks is always expensive, foolish, ineffective and it reeks of moral hazard.

By: REMant Tue, 08 May 2012 02:00:12 +0000 More “liquidity” never helped anybody in the long-run, and, yes, we do have to consider the long-run. More debt doesn’t mean wealth, just more indebtedness. If one wants redistribution, welfare would be better, and a good place to begin would be to redistribute some of the social-democratic perks in these countries.