Wednesday, May 2, 2012

Europe's May Day

The Lehmann Letter (SM)
Take a look at today's New York Times article about May Day rallies across Europe protesting that continent's austerity policies:

Nations across Europe have been tightening their fiscal belts: Reducing expenditures and raising taxes. These policies have shrunk aggregate demand, contracting output, employment and income. It is a classic "rules of the game" policy, designed to maintain uniform currency levels - i.e. preserve the euro - in the face of investor skepticism. Nations hope that investors won't dump their bonds if they are confident that budgets will be balanced.

The consequences are clear. Today's New York Times carries a story about the recession in Holland:

Yesterday's Wall Street Journal published a story about recession in Spain:

French presidential elections, concluding soon, will determine France's willingness to maintain austerity. Irish voters will also have their say.

Germany, Europe's principal austerity advocate, continues scolding its weaker compatriots. Chancellor Angela Merkel must respect the wishes of her own citizens: They are tired of bailing out the profligate nations on Europe's fringe. Perhaps Chancellor Merkel can convince her electorate to feel the rest of Europe's pain and ease demands for austerity.

But no one in a position of leadership is suggesting that Europe forsake its long-run project and abandon the euro.

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© 2012 Michael B. Lehmann

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