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when one thinks about the current
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situation and uh uh the problem with uh
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uh austerity measures that is to say you
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know this uh focus on on fiscal
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adjustment right reduction of expenses
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and uh uh increases in taxes in some
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countries uh you know what I think most
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governments have already realized is
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that this is not going to be the
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long-term solution the problem of course
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is that there's no agreement uh in
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Europe as to what might be an
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alternative uh path of action and the
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northern countries the Creditor
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countries are insisting on austerity
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because of course they feel that you
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know they they they should not pay for
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the excesses right of the last decade in
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the southern uh countries but I think uh
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one must uh you know step out of that uh
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dichotomy between either austerity or
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the end of the Euro right and I think
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there are intermediate uh Paths of
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action that have not been tried and I'm
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not the only one uh person uh proposing
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them but one of them is to uh ask the
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European Central Bank to accept a
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slightly higher rate of of inflation why
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would this work uh help well this would
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help because as you know inflation tends
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to reduce the debt burden right in real
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terms so if you maintain inflation let's
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say half a percentage Point higher than
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what it is now over the next three or
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four years that's going to help uh
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countries such as Spain and Italy which
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are really you know the countries where
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the future of the euro is going to be
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decided right uh so these two countries
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could benefit immensely for that but the
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second point that I would like to make
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is that uh the method by which you
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increase inflation right by a few you
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know T of a percent uh also would matter
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a great deal so I wouldn't do it with uh
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quantitative easing with another round
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of QE this time in Europe not here in
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the United States the way I would do it
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is by asking uh the Germans to increase
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wages for their workers above
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productivity increases right that would
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be inflationary that would reduce German
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competitiveness granted but hey you know
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it would also weaken the Euro a little
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bit and a weakening of the euro is going
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to help German exporters right a
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weakening of the euro is also going to
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help Spanish or Italian or Greek
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exporters okay so you get that benefit
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but you get another benefit if the
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Germans uh if the German population has
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more money right because their wages
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have increased right they're likely to
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buy more goods and services they're
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going to they're going to save some of
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that money but they're also going to
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consume more and of course they will
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consume more German Goods they will
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consume more Chinese Goods but they will
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also consume more goods and services
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from the European periphery they will go
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on vacation for a longer period of time
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they will spend more money they will buy
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more uh Spanish and Italian Goods as
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well uh so that that should be uh you
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know the second point the third point I
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don't think this is going to happen but
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the third uh uh you know action that
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they could uh they could take
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is uh a little bit of a stimulus in
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Germany you see right now the Germans
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can borrow money at negative interest
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rates right so you know there's things
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that the German government would like to
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do maybe they want to build some piece
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of infrastructure here or they would
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like to invest more in education or on
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R&D they should do it and that fiscal
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stimulus in Germany sure it will come
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with a little bit more inflation but
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that's going to help not just Germany
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but all of the other countries that
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trade with Germany as well
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uh the problem of course is a political
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one which is that it's very difficult to
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persuade the German public uh and the uh
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the voters in several of the other
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creditor countries that they should
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accept a higher inflation because once
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again inflation helps those who you know
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uh owe money uh but uh it does hurt uh
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the savors it does hurt the the people
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who are
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creditors uh so they are reluctant to go
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down that path and of course
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historically as you know uh the German
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voter has become very very much against
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uh High inflation right for for all
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sorts of historical reasons uh so
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there's a lot of uh reluctance on the
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part of German politicians then to go
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down that path uh but I think it is
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right now uh the only viable solution
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that doesn't continue this procyclical
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you know that doesn't contribute to this
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procyclical Dynamic that I described
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earlier
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