Monday, October 31, 2011

The French Economic Situation

An interesting analysis by Rob Parenteau:

To be clear, Greece is not a special case, but rather a case in point of what happens when you attempt fiscal consolidation in countries with high private debt to GDP ratios, high desired private net saving rates, and large, stubborn current account deficits – conditions, by the way that also apply to France. EFC’s [expansionary fiscal contraction] are possible, but they are not automatic: in fact, they require very special conditions. Pursuing ID’s [internal devauation achieved by wage and benefit reductions] at the same time a financial consolidation is underway insures the latter effort will be thwarted as domestic incomes deflate. We must conclude the Troika’s policy approach has been an abject failure – indeed, they appear to have finally concluded as much themselves. It is high time to explore entirely new policy directives before the remaining eurozone economies are driven into the ground under what appears to be a faulty, faith based economics of the Troika.

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