Posted by WARREN MOSLER on February 18th, 2010
Looks to me to be getting more desperate with increasing rhetorical nonsense.
Higher deficits due to falling revenues and rising transfer payments simultaneously weaken both the euro and national govt credit worthiness in a race against time.
And any budget cuts will only further cut aggregate demand and output, cut already falling tax revenues,
and increase unemployment and transfer payments, adding to deficits and further eroding creditworthiness.
The only hope is for a quick enough recovery that brings down deficits through exports, or, evern more unlikely, through domestic credit expansion, before the rapidly deteriorating national govt credit worthiness results in systemic failure of the payments system.
The ramifications of a banking sytem where deposits are guaranteed only by the national govts as yet
to make front page discussion, but nonetheless this structural flaw remains an ongoing source of system
risk capable of shutting down the entire euro payments system.
My proposal for an immediate and annual distribution of 1 trillion euro from the ECB to the national govts on a per capita basis will end the crisis and provide the framework for the national govt credit worthiness needed to reverse current downward spiral.
And not only does it not introduce moral hazard risk, it does the reverse by allowing
for withholding of future payments for non compliance of EU mandates.
Germany’s IG Metall, Employers Agree on Pay, Job Security
German States’ Budget Deficit Increases, Handelsblatt Reports
France’s Lagarde Sees ‘Fragile, Painstaking’ Economic Recovery
Isae Raises Italy’s 2010 Growth Forecast to 1% on Exports
Premier Insists Spain’s Economic Recovery Is Near but Offers Few Details