Austerity Proponents Give In To New Suggestions

New York Times writer Paul Krugman recommends that European austerity is damaged. It must be repaired, and one of the only approaches to do it is be abandoning the euro.

Revolt means loss of jobs

France, Greece and numerous other European nations have shown signs of revolt over dire economic circumstances that have cost many people their jobs. Both France and Greece held political elections May 6, and in both nations, voters cast a firm majority vote for candidates willing to jettison economic austerity policies. While a clear policy alternative to austerity has yet to be defined, Krugman suggests that the "unwashed masses" are through with the type of austerity that learned officials suggested and passed.

Franois Hollande's defeat of French President Sarkozy was painted in ominous tones by The Economist, which considers Hollande's turn from malfunctioning orthodoxy to be "rather dangerous." However, from an economic standpoint, Sarkozy's strategies - enacted in close tandem by neighboring political ally Chancellor Angela Merkel of Germany - clearly weren't working, claims Krugman. Two years of austerity have done nothing but grind into the public, and the voters had enough.

Economy not getting better

The economic depression got even worse when austerity measures were put into place. Getting rid of jobs and slashing spending made it extremely hard for people to spend more. They did not have the cash to do so. The economy was not getting any better.

In Ireland, austerity measures were enacted to get favor and improve the nation's standing in the bond markets. Conventional wisdom suggested austerity would work on that level, but what actually happened in Ireland is borrowing costs remained significantly higher than those in Spain, Italy and Germany. The European press drank the Kool Aid legislators were serving and declared Ireland's measures a success, despite obvious evidence to the contrary.

Moving on for Europe

One suggestion Krugman gives is to allow the euro to be abolished. He believes that if nations could export depending on the devaluation of the currency, it would be much better. Iceland let banks fail, leading it to recovery. Krugman believes that Europe would not be in such a bad place if there were not so many troubles in Greece, Spain and Ireland financially due to the euro.

There might be troubles for a while when the Euro is killed, but eventually Europe would become whole again and would be better than ever. Krugman does point out that the European Union would become obsolete with the change. He also states that one choice that could help everybody is having nations with increased inflation helping their neighbors out through trade. He believes this might really help everyone's economy.

The European Central Bank would need to focus on economic growth rather than inflation if anything were to work.