The ECB Destroys the World

Here's something from Matt Yglesias I read this morning:

UK Can Now Borrow Cheaper Than Germany

By Matthew Yglesias

| Posted Thursday, Nov. 24, 2011, at 11:00 AM ET

If you want proof that the Eurozone's sovereign debt woes are fundamentally about the governance of the single currency and the odd behavior of the European Central Bank, then look no further than the fact that Germany's 10-year borrowing costs are now higher than the UK's. It's very difficult to explain this in terms of the kind of scolding moralism that the Germans have been deploying this fall to explain borrowing problems in the Mediterannean countries. The British aren't out-exporting the Germans. The Germans don't have a bad work ethic or a corrupt political system. The German government hasn't been more profligate than the British government in running up debt over the past 10-15 years. The Bank of England has been much less focused on fighting unemployment than has the Bundesbank/ECB. And over the past year the growth performance of the UK has been terrible as austerity budgeting crushes domestic demand and the economy continues to lack appropriate structure for export-led growth.

And yet financial markets would rather lend to the UK. Because the UK's not in the Eurozone, and because everyone knows the UK's central bank isn't going to let anything crazy happen or get into any wild games of chicken.

I didn't know anything about the European Central Bank a few months ago, and my critics would argue that I still don't know anything about it, but reading Yglesias and Krugman lately has me really depressed about what's going on there.

We keep getting forecasts of doom about European budget problems from the Right, warning that the US is going to be like Greece, just as Spain/Italy/Portugal are following Greece into debt crisis.  They keep saying that this is all because those countries spend too much, because, well, I guess because if they have a debt problem then spending too much is the only reason that can be considered.

But now that Germany is starting to have borrowing problems, even though they're the ultimate savers, running responsible budget surpluses since forever, how can we fit that into the Right's morality play?

Answer: it doesn't fit. Because the problem isn't spending- in other words, spending isn't the reason that European debt problems are spreading all over. The problem is that the European Central Bank is refusing to solve the problem because they're locked into their own morality play and want to scold the southern countries and don't want to bail them out. So now a problem that should be just in Greece (which is the one country that deserves the morality play) is leaking out everywhere, even to Germany.

The good news for American conservatives, though, is that their like-minded European friends are going to drive that whole continent into the ditch, which is going to lead to a huge recession here too, which will get blamed on Obama since he's president, which will get us President Romney. Good times!