A wave of fiscal austerity is rushing over Europe and America. The magnitude of budget deficits – like the magnitude of the downturn – has taken many by surprise. But despite protests by the yesterday’s proponents of deregulation, who would like the government to remain passive, most economists believe that government spending has made a difference, helping to avert another Great Depression.

Most economists also agree that it is a mistake to look at only one side of a balance sheet (whether for the public or private sector). One has to look not only at what a country or firm owes, but also at its assets. This should help answer those financial sector hawks who are raising alarms about government spending. After all, even deficit hawks acknowledge that we should be focusing not on today’s deficit, but on the long-term national debt. Spending, especially on investments in education, technology, and infrastructure, can actually lead to lower long-term deficits. Banks’ short-sightedness helped create the crisis; we cannot let government short-sightedness – prodded by the financial sector – prolong it.

By Joseph Stiglitz

Read more >> | The Dangers of Deficit Reduction – Project Syndicate

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ith the euro under siege, some economists are arguing for radical solutions, like splitting the currency in two.

Can the euro fall after all? Until recently, the scenario seemed unthinkable, but now that the European monetary union is falling apart at the seams, it suddenly seems realistic. Only 11 years after it was introduced to the financial markets, the currency has become the plaything of currency traders.

Read more >> | nrc.nl – International – Europe – Speculation on the demise of the euro

s euro-zone leaders face growing uncertainty in financial markets about the public finances of Greece and other member countries, their statements, albeit somewhat vague, underscore a much larger story – one that will force firms and investors to question their assumptions about Europe’s economic, financial, and political environment.

Let’s first dispense with a powerful emerging myth. Greece’s troubles have encouraged some to wonder aloud if the euro zone can survive its growing internal imbalances. But such doubts ignore the political and cultural factors that buttress a deep European commitment to preserve the monetary union.

By Ian Bremmer

Read more >> | The Greek Crisis and Beyond – Project Syndicate

See also >> | Q&A With Ian Bremmer on State Capitalism – Foreign Affairs

See also >> | The Guardian

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nstead of addressing fundamental issues like the role of finance, politicians seem stuck in assuaging public anger, argues Sony Kapoor, a financial adviser to the EU and ex-Lehman Brothers derivates trader, in an interview with EurActiv.

Kapoor, whose think-tank Re-Define has been consulted by the European Parliament and the European Commission on financial regulation, says world leaders have so far shown a lack of vision in reshaping the post-crisis financial system, arguing that it will be up to the EU’s competition authorities to clean up.

Outside Brussels, national leaders are missing the bigger picture, says Kapoor, though some have come up with “politically palatable” proposals.

Read more >> | EurActive

he introduction of the euro in 1999, it was claimed, would narrow the economic differences between the member countries of the monetary union. Unemployment rates would converge, as would other important macroeconomic variables, such as unit labor costs, productivity, and fiscal deficits and government debt. Ultimately, the differences in wealth, measured in terms of income per capita, would diminish as well.

After the common currency’s first decade, however, increased divergence, rather than rapid convergence, has become the norm within the euro area, and tensions can be expected to increase further.

Read more >> | The Euro’s Final Countdown? – Project Syndicate

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ust as America’s recession begins to ebb, trouble is brewing in Europe that may prolong a downturn on the Continent and ricochet through the global economy as it struggles toward a recovery.

Read more >> | The New York Times

he government’s macro economic policy unit CPB did not warn the government too late about the looming credit crisis in 2008, the institute’s director Coen Teulings told a parliamentary committee on Monday.

Read more >> | DutchNews.nl – Regulators in spotlight at credit crisis probe

oth the Dutch and US governments have begun inquiries into the origins of the financial crisis. Five questions on them answered.

Public hearings by committees of inquiry into the current financial crisis have been launched in both the US and the Netherlands. Last Wednesday, the first four American bankers reported to the American Financial Crisis Inquiry Committee. This Monday, in The Hague, the Temporary Committee Investigating Financial Systems, better known as the De Wit Committee, holds its first public hearing. What are the most important similarities and differences between the two approaches?

Read more >> | nrc.nl – International – Features – Like US, Dutch launch inquiry into banking crisis

n Winnie-the-Pooh, there is a significant moment when the bear is asked whether he wants honey or condensed milk with his bread. He replies “both”. You can get away with this sort of thing if you are a much loved character in children’s literature. But it is more problematic when great nations start behaving in a childish fashion. When Americans are asked what they want – lower taxes, more lavish social spending or the world’s best-funded military machine – their collective answer tends to be “all of the above”.

By Gideon Rachman

Read more >> | The Financial Times