Crisis: Spain; EU rescues banks, not country, Krugman

Planned bailout no solution for Spain

12 June, 11:55

(ANSAmed) - MADRID, JUNE 12 - "Yet again the economy slides, unemployment soars, banks get into trouble, governments rush to the rescue - but somehow it's only the banks that get rescued, not the unemployed." This statement was made by Paul Krugman, U.S. winner of the 2008 Nobel Prize for the Economy, in an opinion article in the New York Times, cited today by El Pais.

The article regards the bailout of the Spanish banking system with 100 billion euros, agreed by the Euro Group and Spain.

According to the economist, the bailout is necessary, but is ''not the solution Spain needs. "There's nothing necessarily wrong with this latest bailout (although a lot depends on the details). What's striking, is that even as European leaders were putting together this rescue, they were signaling strongly that they have no intention of changing the policies that have left almost a quarter of Spain's workers - and more than half its young people - jobless." Krugman complains that the European authorities ''are always ready to spring into action to defend the banks, but otherwise completely unwilling to admit that its policies are failing the people the economy is supposed to serve." He also reproaches the European Central Bank for refusing to lower interest rates.

''Unemployment in the euro area has soared,'' Krugman writes, ''and all indications are that the Continent is entering a new recession. Meanwhile, inflation is slowing, and market expectations of future inflation have plunged. By any of the usual rules of monetary policy, the situation calls for aggressive rate cuts. But the central bank won't move." The economist heavily criticises the eurozone's paralysis and concludes: ''it's becoming increasingly clear that it will take utter catastrophe to get any real policy action that goes beyond bank bailouts. But don't despair: at the rate things are going, especially in Europe, utter catastrophe may be just around the corner." (ANSAmed).

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