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Liveblogging World War II: September 27, 1941

Greece is a Broken Ankle, and Europe Is Suffering from Organ Failure

David Wessel:

Summers Casts Himself as Paul Revere of Global Economy: Larry Summers, the sharp-tongued former Treasury secretary and former White House economic policy coordinator, says the role of yesterday’s policymakers is to sound the alarm loudly enough so today’s policymakers act in time to avert catastrophe. So he did his best to sound the alarm loudly at Friday’s afternoon at a gathering of bankers, former policymakers and journalists in the ornate ballroom of Washington’s Willard Hotel.

Observing that this is the 20th year at which he has attending the annual Fall meetings of the International Monetary Fund and World Bank and related gatherings — some at times of prosperity, some at times of crisis — Summers said the he had never been “more concerned about the global economy.”

“Our problems are as much intellectual as they are political,” he said, arguing that “a generalized misunderstanding has done and continues to do as much” to threaten global economic prospects as the obvious political tensions in U.S. but primarily in Europe, which he accused of “too much collective [fiscal] belt-tightening.”

The barrier to faster global growth, he argued, isn’t lack of capacity or skilled workers or ideas, but an overwhelming lack of demand. Calls for a return to fiscal virtue, if heeded, he said, would continue the currency economic downturn. “We are closer to the edge of a deflationary spiral than anyone would have anticipated six months ago.”…

Referring to Greece, Summers said, “We are discussing a broken ankle in the presence of organ failure,” he said. “If a generous sovereign from Mars paid off Greek debt, the fundamentals of Europe in crisis would not be altered.” The creditworthiness of large European governments and of European banks is now being questioned, and that is crippling growth in Europe. The sign that Europe is grappling with its problems will be when the focus of European negotiations moves beyond the next chapter in the Greek rescue, he said…