The real problem, and the fear, facing European Union countries is not sovereign debt or inter-bank liquidity (as the Governor of the Austrian Central Bank pointed out in Vienna, much can be done to improve liquidity). It is stagnation that threatens our living standards and our political arrangements.
Governor Novotny noted too that last year the Bank of England bought 80% of new issues of UK government debt - an action not permitted to the European Central Bank. If tomorrow the ECB were to be given latitude on this scale, if not unlimited powers, to buy government bonds at least in the secondary markets in exchange for tighter discipine on national governments' fiscal policy, then the Euro would be home and dry. Although frankly this can only be regarded as a quasi-fiscal activity bordering on abuse of central bank position as a monopolist of currency issue.
There are three inter-related crises: budget - the re-financing of the public sector; bank - their not lending to each other ; and in the real economy. And the greatest of these is the crisis of the real economy, for it is this crisis that is intractable.
The United States, Europe and Japan represent over two thirds of the world economy. They are displaying all the signs that they have reached the limits of standard fiscal and monetary instruments used in the past. In the US despite flat or declining wage levels - something that had not happened in 40 years - unemployment has increased since 2008. Interest rates have been fixed at 0% for two years in advance. Japan has been flat as a pancake for 20 years no matter what has been attempted, and the US is heading in the same direction.
Europe, despite the fuss surrounding government debt re-financing, and the currency, still shows signs of life. How can it be nurtured? First of all Germany must conform to the Euro requirement for staying under but close to a 2% inflation rate just as certainly as any other member state must not exceed it.
Paradoxically, higher wage levels are needed. Technological innovation under-pinned by reseach and development must be enhanced and facilitated by governmental action. Infrastructural development (not the greenery-yallery agenda but real provision of better communications, natural disaster protection, the recuperation of the devastations of 19th and 20th century industrialisation) undertaken. An end is needed to cruel programmes of 'austerity' that merely attack the weakest rather than the corrupt, driving down demand while spreading poverty, inertia, ignorance and incapacity.
For our political culture failure to ensure growth in Europe is encouraging incoherent but worrying claims for non-capitalist economic systems. As Janos Kornai states plainly:
"At a time when socialism is being reconsidered we need to remember its human cost and we need to re-emphasize its failure on technical grounds - macro-data decision-taking failed to match market choice. There isn't a solution to capitalist difficulties through socialist theorising or practice."
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