Talk about dungeons and Draghi. European Central Bank president Mario Draghi has declared war on Europe's social safety nets. Watch out, the austerity measures are about to get worse.
In an interview with The Wall Street Journal, Draghi has warned euro-zone countries that there is no escape from tough austerity measures and that the Continent's traditional social contract is obsolete. He says there are no quick fixes and maintains that continuing economic shocks will force countries into structural changes in labour markets and other aspects of their economies, to return to long-term prosperity. In other words, there's a lot worse to come. "There is no feasible trade-off" between economic overhauls and fiscal belt-tightening, " Draghi said. "Backtracking on fiscal targets would elicit an immediate reaction by the market," pushing interest-rate spreads higher."
And here is the problem. As Associated Press economics writer, Paul Wiseman, says, the austerity is making it worse. "Europe has endured the pain of layoffs, wage cuts and tax increases designed to bring government debt under control. So where's the gain? Far from falling, debt burdens are rising fastest in European countries that have enacted the most draconian austerity programs, according to The Associated Press' Global Economy Tracker, which monitors the performance of 30 major economies. The numbers back up what many analysts say: Austerity isn't just painful. It can be counterproductive and even make a country's debt load grow."
Which is why what we're seeing now is "austerity fatigue". European countries like Italy and Greece are in recession and the eurozone is debilitated by the goings-on of two years of desperate politician's debates, official negotiations, union strikes and angry mobs taking to the streets.
If Draghi has his way, it's going to get a lot worse.
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