At this point, we’re in the economic equivalent of the movie Groundhog Day:
Since the beginning of the debt crisis in Europe more than two years ago, defenders of the euro currency union have stuck to a basic argument: if the euro zone’s weaker economies would only keep pursuing policies of austerity, even as growth collapsed and job losses mounted, they would be rewarded by investors more willing to buy their bonds.
Yes, the social cost would be high, but over the long term economies would benefit from the lower interest rates that can come with the seal of approval from global bond investors. Or so goes the argument.
That approach, though, has failed in Greece, Ireland and Portugal. And now it is being severely tested in Spain, where the more the government promises to cut its budget deficit, the more foreigners are unloading their Spanish bond holdings.
Late Thursday, when Standard & Poor’s jumped into the fray by slapping Spanish bonds with a two-notch downgrade, it gave public voice to what investors have been sensing for months now — that it will be nearly impossible for Spain to meet its current deficit-lowering target amid one of the most severe recessions in the euro zone.
For those of you who, like me, do not have degrees in economics, here is a very useful primer for determining who to trust. If anyone ever sincerely used the phrase “bond vigilantes” or asserted that austerity would inspire confidence, and that would turn the economy around- ignore them. Forever.
On a more serious note, how long are we going to live in a world ruled by self-serving idiots who lie or are wrong about everything?