This is not the yellow brick road Dorothy (Naked Capitalism)

MONDAY, JUNE 25, 2012

Europe Takes a First Step

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

It’s another week and another summit for Europe. The latest EU summit will be held in Brussels on Thursday and Friday and once again it is a ‘summit to end all summits’. Last Friday saw the leaders of the four largest Eurozone economies meet in Rome and the outcome was relatively positive:

The countries with the four-largest euro-zone economies agreed on Friday to aneconomic growth program with a total value of €130 billion ($163 billion). The sum represents 1 percent of the European Union’s gross domestic product, Italian Prime Minister Mario Monti said in Rome after a meeting with German Chancellor Angela Merkel, French President François Hollande and Spanish Prime Minister Mariano Rajoy.

Germany, France, Italy and Spain all agreed that growth measures undertaken so far have not been enough to pull Europe out of a debt crisis that is threatening to unravel the continent’s common currency, the euro. They also agreed that budget discipline alone will not be enough to fuel economic growth and create jobs for the mass of unemployed Europeans.

Chancellor Merkel said the plan was the “message we need.” She also admonished Europe to venture even closer political integration.

Although much of this wasn’t new money I think it is an important step forward because of the acknowledgement that the current ‘austerity only’ plan is failing to fix the Eurozone’s problems. I’ve always thought that ‘austerity alone’ would be a total disaster for Europe and that the idea would eventually be abandoned but that it would probably take the effects of the policy to start effecting one of the largest economies before we saw some reversal of policy. Now that contagion is lapping at Italy’s shores and the latest PMI data suggests that Germany is getting dragged down as well there is a chance we will finally see the beginnings of a co-ordinated response at this week’s summit. Emphasis on ‘beginnings’.

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