NP: No gov't; best gov't..from John Lanchester LRoB

[David Morris]

http://thinkprogress.org/yglesias/2011/09/02/310677/austerity-is-killing-europes-recovery/

http://www.washingtonpost.com/business/economy/is-austerity-killing-europes-recovery/2011/08/31/gIQANPvCvJ_story.html

Is austerity killing Europe’s recovery?

An example of the dynamic:

In the aggregate, Germans were lending money to Spaniards so the
Spaniards could buy stuff that’s made in Germany. The result —
consumption for Spain, jobs for Germans. The reason they were able to
do that is that property values in those countries was increasing,
which was making people eligible for bigger loans.

Then property values declined, the lending boom stopped, and the
construction sector drew to a halt. Spanish consumption, in other
words, started to plummet.

Also,  tax revenue started to plummet and deficits ballooned. The EU
response to this has been to say that Spain, Portugal, Ireland,
Greece, and Italy all need to raise taxes and cut spending to avoid
debt crisis. You can see the logic. If debt is a problem, then higher
taxes and less spending are the solution. But the deficits were driven
by cratering growth. And that means you need some growth path for
these countries. That could have been fiscal stimulus to offset
falling private consumption. It could have been loose money from the
ECB to offset the contractionary trends. It could have been some
deliberate effort in Germany to get consumption to grow faster than
production and “rebalance” the economy. But we haven’t gotten any of
that.