But what is the alternative? In the short run, the problem is to stabilize the European economy and put the euro back on a sustainable footing. This can only be done by reducing the massive debt generated by the rescue of the financial system, and this in turn requires putting most of the cost of the rescue back onto that system through a combination of restructuring (the necessity of which has finally been recognized in the Greek case) and acceptance of a temporary increase in inflation. The resistance of the ECB to both courses of action will be vigorous but must be overcome—throughout this crisis, the ECB has been part of the problem not part of the solution.
The answer is that short-term stimulus must be combined with long-run targets substantially more ambitious than those of the Maastricht agreement on which the euro was based. This "hard Keynesian" approach starts from the premise that, if governments are to stabilise the macroeconomy in times of crisis, they must maintain the fiscal capacity to do so.
This offers something for everyone. The Franco-German core will not be endlessly responsible for bailing out feckless spenders. For the EU periphery, this is a positive alternative to destructive policies of austerity.
It remains to be seen whether the EU will be true to the vision of co-operation on which it was founded.
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While budget cuts as a part of austerity measures are fully understandable and justified, tax increases are, ostensibly paradoxically, more likely to reduce overall budget income than to raise it. Simply, when taxpayers are faced with higher taxes at a time their wages or profits have already dropped, they rather seek to avoid their fiscal duties by switching business to grey or black market. This is particularly true for countries with relatively low level of fiscal discipline of their residents, such as Greece and most of others in the so-called European periphery.
A financial crises would be much less of a concern if we had a more productive manufacturing base. Gordon Brown's claim that Britain was well placed to weather the global economic storm was therefore as ludicrous as claim to have ended "boom and bust".As for the financial system being like a pyramid scheme the point is well made. But when it comes to reckless behaviour with Other Peoples Money, the biggest offenders are governments. What we need to do is restore "moral hazard" to the private financial arena and reduce pubic spending to more affordable levels, keeping in mind it is paid for by the private sector rather than treating public spending as a perpetual motion machine which generates "profit". We can stimulate growth by reducing corporation tax (rather than bleating at Ireland, we should do something similar). Returning to people more of their own money is a real way to stimulate growth, rather than payday UK borrowing and printing it.
It's maddening how prevalent much fearmongering has grabbed the western world by the balls. In America, their failing economy has provoked survivalists to stock up on food, power generators, set up home alarm systems, purchase an arsenal of guns and ammo and ever build bomb shelters under their homes in an effort to survive the impending apocalypse. If they spent half the time they spent preparing for the worst and instead invested their time and energy into their country's policies, they wouldn't need all those provisions.