Monday, March 18, 2013

If it were possible

There are many levels on which I think the "ideal" solution for Europe would not come about and I'm not even sure if it's technically feasible, but here goes:

I just read a very brief post by Marcus Nunes (Historinhas) where he illustrated that the European Central Bank looks like it has been targeting NGDP for Germany and Austria, both of which are not estimated to have any significant output gap, at all. Which makes me think: instead of imposing austerity on the peripheral nations while keeping monetary policy tight, why not loosen monetary policy a lot, so that the GDP gaps close in the periphery and impose austerity on the "core" (Austria and Germany)? What's nice about that is that it would improve the budget balances of all the other nations and Germany and Austria could work down their debt levels or cut back their welfare states (not that I endorse that)... Better just to prepare for the moderate demographic problems they face in the future... in fact, maybe it's time to increase the redistributive element of the European Union and help cut some of the excessive debt in other nations of the EU.

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