Let the Ad Hominems Begin!

Ken Rogoff explains why fiscal stimulus won’t solve the eurozone’s problems:

The eurozone’s difficulties, I have long argued, 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, much less one that he sought to address.

Above all, any realistic strategy for dealing with the eurozone crisis must involve massive write-downs (forgiveness) of peripheral countries’ debt. These countries’ massive combined bank and government debt – the distinction everywhere in Europe has become blurred – makes rapid sustained growth a dream.

The way I’ve characterized the problem is that as long as Germany and Greece use the same currency and Germans believe that Greece is a fiscal shambles because the Greeks are lazy and profligate, Greece’s problems will only get worse. The same for Spain, Italy, and Portugal. When France joins countries of the “eurozone periphery” in economic decline and fiscal problems, the fur will really begin to fly.

Meanwhile, I expect the immediate response to Dr. Rogoff’s comments, as obvious as they are, to be personal attacks on him on the grounds that he’s a partisan hack, that his work on deficits has been thoroughly debunked, etc. As he notes at the beginning of the piece:

Commentators are consumed by politics, flailing away at any available target, while the “anti-austerity” masses apparently believe that there are easy cyclical solutions to tough structural problems.