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Noted for Your NIghttime Procrastination for November 23, 2014

Evening Must-Read: Wolfgang Münchau: Radical Left Is Right About Europe’s Debt

Wolfgang Münchau: Radical left is right about Europe’s debt: "Assume that you share the global consensus view...

...on what the eurozone should do right now. Specifically, you want to see more public-sector investment and debt restructuring. Now ask yourself the following question: if you were a citizen of a eurozone country, which political party would you support for that to happen? You may be surprised to see that there is not much choice. In Germany, the only one that comes close to such an agenda is Die Linke, the former Communists. In Greece, it would be Syriza; and in Spain, it would be Podemos.... You may not consider yourself a supporter of the radical left. But if you lived in the eurozone and supported those policies, that would be your only choice. What about Europe’s centre-left parties, the social democrats and socialists? Do they not support such an agenda? They may do so when they are in opposition. But once in government they feel the need to become respectable, at which point they discover their supply-side genes....

Of the radical parties that have emerged recently, the one to watch is Podemos.... Nacho Alvarez, a senior member of the party’s economics team, laid out his programme with a refreshing clarity... renegotiation of interest rates, grace periods, debt rescheduling and a haircut... Podemos’ goal was not to leave the eurozone.... The aim is the economic wellbeing of the country. To an outsider, that seems a balanced position. Not so in Spain. The establishment fears that this agenda will turn the country into a European version of Venezuela. But there is nothing controversial about the statement that if debt is unsustainable it needs to be restructured.... It is logically inconsistent for the single currency to enter a secular stagnation and not restructure its debt. Since nothing is being done to avoid the former, there is a probability approaching 100 per cent of the latter happening. Yet, for the moment, European governments keep playing the 'extend and pretend' game...

As best as I can understand the thinking of Northern European politicians and technocrats--which is not very well--they believe that "extend and pretend" is a road toward debt restructuring in the long run and that more aggressive moves toward debt restructuring will undermine southern Europe's political willingness to undertake the structural reforms to boost productivity that are as absolutely essential in the long run as is debt restructuring.

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