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The discourse continues to be dramatic, and the violent protests in the streets of Athens will remain a reminder for some time to come that, on its own, austerity is both bad politics and bad policy. At another level, however, there are indications that, finally, Europeans may be willing to take bold steps towards resolving the financial crisis.

There is now recognition among politicians that mistakes were made in the past—back in 2008, when the EU was more interested in pointing out how much better it was than the US rather than taking a closer look at its own structural deficits; regarding Greece, when it was simply assumed the problem centered on the squandering attitudes of a corrupt political administration and a whole nation; till recently, when the conviction was still being upheld that the good economic data for 2010 and most of 2011 for some countries were proof of resilience; or, that a strong Euro is a good thing despite the overall decline of aggregate demand.

Among European banks, the process of writing off bad debts has begun—two of the larger Austrian banks have proceeded with this already at the beginning of October—and a mechanism for their recapitalization is currently being explored, and will most likely involve the combined intervention of national and supra-national instruments (since the EU Treaty does not yet allow a full-scale European ‘federal’ intervention).

The financial markets have been upbeat most of last week—alone, it seems, in anticipation of a solution. This is proof of the significance of psychology in all this. It is now taken for granted that there will be losses and that these will be significant—in the case of Greece there is talk of sixty per cent write-offs—but losses is something financial markets can cope with, less so with the risk of uncertainty caused by lack of knowledge or the reluctance to act.

A recent article by John Cassidy in ‘The New Yorker’ on John Maynard Keynes—nicely entitled ‘What would John Maynard Keynes tells us to do now—and should we listen’—provides a good outline of what needs to be done in the short-, medium- and long-term. It also highlights the significance of the factor time for crisis intervention. Timing, as in when is the right time to act; but also timing, as in how long to persist (or not) with certain policies under specific contexts.

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