Editorial – Speaking during this week’s London Book Fair, the Toulouse-based economist Paul Seabright deftly summed up why such huge, painful efforts simply aren’t paying off. Politicians, he said, remain hellbent on painting the euro crisis as a morality tale – a saga of profligate southern Europeans and virtuous northern Europeans – when it is anything but. Until the eve of the banking crisis, Spain had sounder public finances than Germany. Similarly, the idea that Athens was covering up the level of its debt only gets you so far. Anyone who cared to inspect the figures could see that by 2008 Greece had become the fifth-largest importer of arms in the world – behind China, India, the United Arab Emirates and South Korea, despite having a far smaller economy than any of those countries. As Mr Seabright put it, such information, denoting just how wildly Greece was spending on the wrong things, was “in plain view” of any supposedly cautious German banker who cared to look.
The implication is clear: rather than devote efforts to ruining the lives of southern Europeans, a far more effective way to deal with the continent’s crisis would be to restructure the banks, then rein them in for good. The alternative is to trust in austerity for the public and generously allow the banks to “deleverage” and shrink their balance sheets at their own pace. more> http://tinyurl.com/6u838w3
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