European Union doesn’t need austerity but structural reforms to leave behind the economic crisis. It’s what affirm Lorenzo Bini Smaghi, currently visiting Scholar at the Weatherhead Center for International Affairs at Harvard University and at the Istituto Affari Internazionali in Rome in his book “Austerity: European democracies against the wall” which was presented yesterday at London School of Economics.
The event organized by “The LSE SU Italian Society” was chaired by LSE Professor Paul De Grauwe and the discussant was Mats Persson, Director of Open Europe Think Tank. In this book Bini Smaghi, who served as a member of the Executive Board of the European Central Bank from 2005 to 2 011 criticizethe American economist such as Paul Krugman who believe European politics has been not so clever (Bini Smaghi in his book write provocatively stupid) to adopt recessive measures. According Bini Smaghi in fact we need to change approach: it is not the austerity that caused the low growth, but it is the low growth that caused the austerity. In other words, countries that have experienced low growth potential, due to deep structural problems in an effort to sustain their standard of living and their welfare system have accumulated before the economic crisis, excessive public and private debt , then, when the crisis broke out, the debt proved unsustainable and called for an abrupt adjustment. “The austerity has certainly produced a low growth, but it may itself be the result of a poor growth and unbalanced, due to the lack of structural reforms”, said Bini Smaghi. “The postponement of reforms that would improve growth potential – he argued – has left the country with a single solution, austerity. Austerity is thus the result of the inability of politicians to take decisions at the right time, in other words it is the result of their short-sightedness – and stupidity”.
The exit strategy for the economic crisis, according Bini Smaghi is that P.I.G.S. (Portugal,Italy,Greece and Spain) must find stenght to do reforms in order to regain competitiveness while Germany and the other rich European countries must use their strong position to push Europe to create a banking union, because a monetary policy can do only a part of job for recovery.