Esoteric economics of Europe

That modern day economics can get complicated as we go along, is borne out by the very genesis of the European Monetary Union, the catalyst for European integration that brought together 17 diverse economies in a single monetary union; but without fiscal solidarity, a road map to enforce fiscal discipline, or an established lender of last resort. The global dip of 2008 ushered in new problems in the monetary and fiscal planes, for every economy. To stimulate economies, patch-work solutions were attempted by substituting public and private debt for investment. Borrowing against future income and consumption can only sustain short- and medium-term growth. Economies that went for large stimulus spending got caught up in a closed cycle, their balance sheets damaged as demand plunged steeply. Huge deficits then followed in its wake. It opened floodgates for massive capital inflows and unsustainable borrowing in the peripheral economies, most notably the PIIGS nations, accelerating their loss of competitiveness. When the global financial crisis hit, the Eurozone caved in. Countries that have done well around the world have maintained their manufacturing base. Britain, Spain, Italy lost their manufacturing base and ended up badly. Lack of this support base, taken together with congenital structural defects in its monetary policy makeup, the EU was heavily handicapped ab initio. As a result, the global crisis post 2008-09 saw the euro nations with an open licence to borrow generously but with a shared credit card! Since none took the rules seriously, they not only borrowed from their own banks but from each other’s too. Each has been trying since to exist at the other’s expense! As things stand today, though the euro has no enemies, it is disliked by its friends!

   ( PUBLISHED FINANCIAL EXPRESS NOV 26 )

http://www.financialexpress.com/news/letters-to-the-editor-esoteric-economics-of-europe/1199396
http://epaper.financialexpress.com/189917/Indian-Express/26-November-2013#page/6/2