Jayati Ghosh: It wasn’t an actual transfer of one trillion dollars. It was a notional thing. It was a credit line. It was basically the European Central Bank telling private banks across the region: if you are indeed distressed, we will bail you out, we have a credit line ready for you. Now, the markets aren’t buying it. That’s basically the problem. The markets aren’t buying it for two reasons. One is because they see this fundamental imbalance [between the economically stronger and weaker countries tied to the common currency without a political union to effect fiscal transfer from the former to the latter], which everybody could have seen if they had only looked. But the other is more peculiar. The other is that the markets tell the governments: “Oh my goodness! You have an imbalance. You have to cut. Deflate.” So they cut, and the governments are all rushing to then deflate to placate the markets. The minute they cut, the growth prospects worsen. And then the markets say: “Oh my goodness! The growth prospects are even worse. So your fiscal deficit to the GDP ratio is bound to be even worse because the GDP is falling now.” So, then they get further anxiety, and then the governments rush again to take further measures. Now we have a situation where even the surplus countries — I mean Germany, which actually should be spending more — it should be tripling its budget — Germany says, “We’re gonna cut back. We’re going to show the rest of Europe a lesson in fiscal austerity.” They have gone mad, basically.
Jayati Ghosh is Professor, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi, and Executive Secretary of International Development Economics Associates (IDEAs). This video was released by NewsClick on 5 June 2010. The text above is an edited partial transcript of the interview. See, also, Samir Amin, “Managing the Euro: Mission Impossible!” (MRZine, 17 June 2010).