Yes, austerity still rules in Europe. Which makes it very likely that the next recession will be a deep one, and that the current expansion will remain an anemic one. Why do you ask?: Barry Eichengreen: The Policy Debate Europe Needs https://www.project-syndicate.org/commentary/eurozone-stimulus-ramp-up-european-investment-bank-by-barry-eichengreen-2019-12: 'National policymakers in a number of eurozone countries, starting with Germany, are dead set against fiscal expansion. Believing that they are being asked to encumber their children with debt in order to provide the stimulus that countries like Italy are unable to deliver, they happily invoke the EU’s fiscal rules to justify not running budget deficits. This impasse has prompted suggestions that the ECB should pursue fiscal policy by stealth.... The legitimacy of the ECB depends on more than legal formalities. Fundamentally, it derives from public support. And public opinion toward quasi-fiscal measures by the ECB would be strongly negative in countries like Germany.... Rather than attempting to circumvent the intent of the ECB’s statute, the resources of the European Investment Bank should be enlisted. The EIB has €70 billion of paid-in capital and reserves and €222 billion of callable capital. It has a board of directors from all 28 EU member states, limiting the danger of capture. Its charge is to fund sustainable investment projects, and it is empowered to borrow for that purpose. Because it is required to place its bonds with private investors, it is subject to market discipline, and it earns positive returns on its investments. Ramping up its borrowing and spending would be entirely consistent with its mandate.... Proposals for doing so will meet with political resistance from those who fear that a larger EIB would be a loss-making EIB. But significant losses are unlikely in an environment where borrowing costs are only a fraction of the return on equity investment. This, in any case, is the debate Europe should be having. Tackling the stimulus issue head-on is more likely to succeed than proceeding by subterfuge...
#noted #2019-12-30
