Tags: Krugman | European | Suicide | Economic

Krugman: European Policy Prompts Suicides ‘by Economic Crisis’

By    |   Tuesday, 17 Apr 2012 02:31 PM

Europe is dealing with a growing number of economic suicides, whereby some people's financial problems and business failures are causing them to take their lives.

In a New York Times article, economist Paul Krugman wonders if the larger story isn't so much about individuals as about the apparent determination of European leaders to commit "economic suicide" for the continent as a whole.

According to Krugman, when the European Central Bank came to the continent's rescue offering banks open-ended credit lines in return for government bonds as collateral, leaders were given breathing space to reconsider their past approach.

“Instead, they doubled down on their failed policies and ideas,” Krugman wrote in the New York Times.

One of the policies in question is austerity and Spain, highlights the reason why.

Government debt isn't the issue in Spain as it was in Greece. Instead, Spain has an extremely high unemployment rate coupled with excessive levels of private sector debt, especially in the form of mortgage loans.

Similar to the United States, Spain's housing bubble has burst. As insolvency among homeowners rises, so follows the risks for the banks that they owe.

The Christian Science Monitor says the total debt exposure of Spanish banks is an estimated 2.4 trillion euros ($3.153 trillion).

“That's a huge burden anytime, but especially when the Spanish economy is contracting,” the Christian Science Monitor reports.

Unlike the United States, which threw money at its problems in the form of stimulus, Spain's government is sucking money out of its ailing economy.

Critics argue that contraction cannot lead to expansion, which is what the nation needs.

However, the European Union has insisted upon austerity before it considers providing aid.

The Christian Science Monitor warns it may be demanding too much austerity.

Continuing on the present course, imposing ever-harsher austerity on countries with Depression-era unemployment is what's truly inconceivable, Krugman wrote in the New York Times.

Krugman argues an alternative course that includes expansionary monetary policies is needed, but instead there is “complete inflexibility.”

In March, European leaders signed a fiscal pact that in effect locks in fiscal austerity as the response to any and all problems, Krugman wrote in the New York Times.

Rather than admit that they've been wrong, European leaders seem determined to drive their economy — and their society — off a cliff. And the whole world will pay the price, Krugman added.

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