Thursday, October 30, 2014

Wolfgang Münchau uses the D-word for the eurozone

"Europe suffers from fatal politics." - Joseph Stiglitz, August 2014

"Die Lektion dieser verspäteten Stresstests lautet: Je länger wir an den Symptomen rumfummeln, anstatt die Ursachen zu bekämpfen, desto länger dauert die europäische Wirtschaftsdepression." [my emphasis]

"The lesson of these delayed stress tests [by the ECB of eurozone banks] reads: The longer with fool around with the symptoms, instead of dealing with the causes, the longer the European economic depression will last." [my emphasis]

- Wolfgang Münchau, Den echten Stress haben nicht die Banken Spiegel Online 27.10.2014
Münchau right points out that whatever good results from the stress tests the ECB just did, however many banks boost their capital reserves, it won't do much to boost the economy.

That's because the eurozone is in a depression, with interest rates at the zero lower bound. They are facing the real threat of deflation, if they aren't there already. Münchau notes that the ECB's stress test

Until economic activity picks up and therefore the demand for credit increases, the banks having money to lend won't do much good for the economy.

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