Simon Johnson is one of those reasoned, credible, experienced voices that keeps repeating, 'No, no matter how much money you print up and throw at places like Greece and Italy, this will not solve the problem. It's not a money problem, it's a cultural problem.'
At least the New York Times prints his words, still.
Lech Walesa famously remarked that it was easier to make fish soup from fish than to do the reverse. So it is with fiscal crises — once fear prevails and markets start to think hard about the stress scenario, it is hard to solve the problem simply with reassuring words or financial support that never needs to be used.
Crisis veterans like to say, quoting former President Ernesto Zedillo of Mexico, that when markets overreact, policy needs to overreact in the stabilizing direction. But what really matters is not overreacting; it is making sure you do enough.
In Europe, the first thing peripheral governments need to do is stop accumulating debt, and quickly. Italian fiscal plans to balance the budget in 2012 look implausible, as they assume unrealistic growth. The planned Greek debt restructuring and increased taxes will not turn that economy around, nor prevent Greece from accumulating further debt. Despite all the reported austerity, the Irish government is still running a budget deficit near 12 percent of gross national product in 2011, while nominal G.N.P. actually declined in the first half of 2011.
Good advice for us, only insert 'state governments', 'federal government', 'Congress', 'White House', etc.
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