Krugman: Euro Austerity Policies a `Disastrous Failure'
February 26, 2013 • 11:30AM

On the eve of an Italian national election which has all the world's stock markets and the IMF/EC technocrats very worried, economist and syndicated columnist Paul Krugman wrote in the New York Times that "`respectable' European politicians won't admit that the policies they have imposed on debtors are a disastrous failure." Krugman is talking about the Merkel government in Germany; behind it pulling strings stand City of London finance, the IMF, and the EC Brussels bureaucracy.

Krugman says that "Italy [is] a nation that for all its dysfunction has in fact dutifully imposed substantial austerity, and seen its economy shrink rapidly as a result." He notes that the party of Mario Monti, the Goldman-trained banker imposed on Italy to impose the austerity, will come in at best a distant fourth in the elections.

"For Mr. Monti was, in effect, the proconsul installed by Germany to enforce fiscal austerity on an already ailing economy; willingness to pursue austerity without limit is what defines respectability in European policy circles. This would be fine if austerity policies actually worked -- but they don't. And far from seeming either mature or realistic, the advocates of austerity are sounding increasingly petulant and delusional....

"When Europe began its infatuation with austerity, top officials dismissed concerns that slashing spending and raising taxes in depressed economies might deepen their depressions. On the contrary, they insisted, such policies would actually boost economies by inspiring confidence.

"But the confidence fairy was a no-show. Nations imposing harsh austerity suffered deep economic downturns; the harsher the austerity, the deeper the downturn. Indeed, this relationship has been so strong that the International Monetary Fund, in a striking mea culpa, admitted that it had underestimated the damage austerity would inflict.

"Meanwhile, austerity hasn't even achieved the minimal goal of reducing debt burdens. Instead, countries pursuing harsh austerity have seen the ratio of debt to G.D.P. rise, because the shrinkage in their economies has outpaced any reduction in the rate of borrowing."