Monday, January 24, 2011

The Fork In the Road For Europe


The Spectre Haunting Europe

Debt Defaults, Austerity, and Death of the “Social Europe” Model

Michael Hudson

..............The problem is the austerity imposed by existing debt levels........ Aside from the misery and human tragedies that will multiply in its wake, fiscal and wage austerity is economically self-destructive. It will create a downward demand spiral pulling the EU as a whole into recession.

The basic problem is whether it is desirable for economies to sacrifice their growth and impose depression – and lower living standards – to benefit creditors. Rarely in history has this been the case – except in a context of intensifying class warfare. ......

What is needed is a reset button on the EU’s economic and fiscal philosophy. How Europe handles this crisis may determine whether its history follows the peaceful path of mutual gain and prosperity that economics textbooks envision, or the downward spiral of austerity that has made IMF planners so unpopular in debtor economies.

Is this the path that Europe will embark on? Is it the fate of the Jacques Delors’ project of a Social Europe? Was it what Europe’s citizens expected when they adopted the euro?

There is an alternative, of course. It is for creditors at the top of the economic pyramid to take a loss. That would restore the intensifying GINI income and wealth coefficients back to their lower levels of a decade or two ago. Failure to do this would lock in a new kind of international financial class extracting tribute much like Europe’s Viking invaders did a thousand years ago in seizing its land and imposing tribute in the form of land. Today, they impose financial charges as a post-modern neoserfdom that threatens to return Europe to its pre-modern state.

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