Thursday, May 17, 2012

The Consequences of Ignoring Keynes' Call for a Debt Jubilee

Centrist governments across the Mediterranean are increasingly seen by their citizens as powerless. They have no independent monetary policy; no capacity to devalue; no right to impose capital controls; limited ability to support failing national enterprises; and now they are mandated to tighten fiscal policy. When moderation fails, the time comes for citizens to turn to those promising to take power into their hands, be they from the right or the left – anything but the pusillanimous centre!
That is what happened in the 1930s. It is a historical irony that European countries that avoided a repeat of the Great Depression after the banking crisis are now driving into the blind cul-de-sac that led to extremism in that earlier disaster.
Read it at The Financial Times
How Keynes would solve the eurozone crisis
By Marcus Miller and Robert Skidelsky

In The Economic Consequences of the Peace, John Maynard Keynes showed remarkable foresight in recognizing that the burden of restitution placed on Germany and Austria-Hungary was so great that it would lead to further war in the future. Miller and Skidelsky note that Keynes:
recommended a round of debt cancellation among European countries, a plan that would – at the stroke of a pen – remove much of the problem.
Apparently the political feasibility of a debt jubilee has not changed much in the last 90 years.

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