HERE is no magic Keynesian bullet for the eurozone's woes. But the spectacularly muddle-headed argument nowadays that too much austerity is killing Europe is not surprising.
Commentators are consumed by politics, flailing away at any available target, while the "anti-austerity" masses believe there are easy cyclical solutions to tough structural problems.
The eurozone's difficulties stem from European financial and monetary integration having gotten too far ahead of actual political, fiscal, and banking union. This is not a problem with which Keynes was familiar.
Above all, any realistic strategy for dealing with the eurozone crisis must involve massive write-downs (forgiveness) of peripheral countries' debt.
This is hardly the first time I have stressed the need for wholesale debt write-downs. Two years ago, in a commentary called "The Euro's Pig-Headed Masters," I wrote that "Europe is in constitutional crisis. No one seems to have the power to impose a sensible resolution of its peripheral countries' debt crisis. Instead of restructuring the manifestly unsustainable debt burdens of Portugal, Ireland, and Greece (the PIGs), politicians and policymakers are pushing for ever-larger bailout packages with ever-less realistic austerity conditions."
In a debt restructuring, the northern eurozone countries (including France) will see hundreds of billions of euros go up in smoke. Northern taxpayers will be forced to inject massive amounts of capital into banks, even if the authorities impose significant losses on banks' large and wholesale creditors, as well they should. These hundreds of billions of euros are already lost, and the game of pretending otherwise cannot continue indefinitely.
A gentler way to achieve some modest reduction in public and private debt burdens would be to commit to a period of sustained but moderate inflation, as I recommended in December 2008 in a commentary titled "Inflation is Now the Lesser Evil."
Sustained moderate inflation would help to bring down the real value of real estate more quickly, and potentially make it easier for German wages to rise faster than those in peripheral countries. It would have been a great idea four and a half years ago. It remains a good idea today.
What else needs to happen?
In another commentary, "A Centerless Euro Cannot Hold," I concluded that "without further profound political and economic integration - which may not end up including all current eurozone members - the euro may not make it even to the end of this decade."
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