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Wednesday's favorable German Court
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ruling is a major step forward for
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European Central Bank head Mario dr's
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proposed unlimited Sovereign Bond
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purchase program to rescue the euroo
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but even if implemented it misses the
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most pressing problem A desperate need
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for short-term economic growth the best
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way to achieve that a temporary exit
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from the Euro Zone by Spain Greece and
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possibly Italy that would allow for
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major devaluations says Wharton Finance
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Professor Franklin Allen once growth
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redresses Regional imbalances the
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countries could rejoin the currency
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Union so let's pursue this issue of
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growth a little bit more because this
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this is real
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the central issue in the whole crisis at
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the moment what these countries need to
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do is to grow out of the problem and
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that's the real way to get rid of the
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debt issue that faces the periphery
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countries if you look at what's
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happening though this is not what's
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occurring in fact if anything we're
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going the other way what seems to have
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been the case is that the official
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sector has done a very poor job of
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forecasting actual growth rates when
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austerity policies are implemented it
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seems that they are assuming that
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markets will clear and the economy will
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get back to its traditional kinds of
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operation fairly quickly but that simply
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hasn't happened what we've seen instead
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is this downward spiral whereby
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governments cut expenditure and then
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that unfortunately leads to a drop in
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GDP they then have to cut more and so on
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in the meantime unemployment goes up
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dramatically so in G Greece it's
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approaching
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25% overall youth unemployment is also
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already over five
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50% in Spain it's even worse they're
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around
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25% and youth unemployment is over 50%
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in some regions of Spain like Andel
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luthia where I spent my summers in my
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youth the unemployment rate is now 30%
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the youth unemployment rate is
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60% these are figures that are much
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worse than we've had since the Great
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Depression and even comparable and some
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some regions worse than that so this is
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an awful time that they're going through
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now the question is what are the growth
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policies what could get growth going my
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own view is that the kinds of policies
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that they're talking about which is
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liberalizing markets
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reforming taxation systems reforming
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education systems increasing competition
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these These are good policies but they
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take significant amounts of time to
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implement and have their effect the real
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problem is that the one short-term
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policy that has a big effect is
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devaluation
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and what they need to do is to accept
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they made a mistake in designing the
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Euro zone They Don't yet have what they
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need to actually have the Euro Zone with
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all these diverse
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economies participate when there's this
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kind of shock and the countries that are
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in trouble need to leave temporarily I I
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would stress just in the same way that e
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in at the start of the ERM in the 1990s
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Italy had to drop out that didn't mean
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that the project was finished it just
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meant that there was a delay what we
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need now is for Greece Spain and maybe
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Italy to leave so that they can then
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devalue
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significantly then they will start to
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grow if we look at
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Argentina they were in a very similar
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kind of recession very deep recession
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once they Def faulted
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and devalued significantly they started
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to grow over the last decade they've
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doubled their economy in size since the
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trough and they that's despite very bad
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economic policies if you go back to the
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1930s a number of people like Jeffrey
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Sachs and Barry ion green argue that we
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were better off to have countries
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leaving the gold standard because they
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could then start to recover and grow
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again and I think if you look at the
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evidence there's significant amount of
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evidence that devaluation is the best
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way to get growth quickly and I think
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that's what we need to see and not this
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continual attempt by the governments to
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have monetary policies or austerity
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policies none of these policies are
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being very effective at the moment
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