Mar 19, 2013 at 9:29 pm
That’s Greek for “economic policy.”
Look, long-time readers know that I’ve been relatively hesitant to lash out against European economic policymakers. Life is a lot harder when you’ve got a currency union that’s neither a fiscal nor a regulatory union. And the inability to devalue the currency—because it’s not yours alone—means a key exit ramp from recession highway–external demand—is shut down.
But I just find it a massive head scratcher as to why, given a debt crisis on top of a shaky-balance-sheet banking system, you’d think of taxing bank deposits. Surely someone around the table raised bank runs as a response. Certainly, history is very clear on this point: put almost any restriction on savings deposits and people will want them back. And such responses are amplified in a time of financial crisis.
The thing is, you don’t have to look far to find similar policy errors, though not as egregious: austerity, of course, both there and, to a lesser extent, here; the insistence that every financial problem is a liquidity problem solvable through bailout, as opposed to an insolvency problem, solvable through cutting your losses.
To be fair, the European Central Bank has provided aggressive backstopping to troubled Eurozone countries, the IMF has, at least on paper, recognized that austerity under current conditions is contractionary, and our Federal Reserve, especially Ben and Janet, have been the only high ranking officials trying to do something about unemployment.
But beyond that, it looks like everyone is getting economic policy backwards, hence the title.
What happens next in Cyprus? Here’s Wonkbook on some possibilities.
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