European policymakers seemingly never fail to disappoint in the way that they handle the European sovereign debt crisis. This week has proved to be no exception. First, today the European Commission issued a statement totally disagreeing with an IMF report acknowledging that major mistakes were made over the past three years in the official handling of the Greek sovereign debt crisis. Second, despite growing signs that the European economic periphery will sink ever deeper into economic depression, the European Central Bank (ECB) has offered no new policy initiative to improve the flow of credit to the beleaguered European economic periphery.
Earlier this week, to its credit, the International Monetary Fund issued a report acknowledging that major mistakes were made in its handling of the Greek economic crisis over the past three years. In particular, it owned up to the fact that the excessive budget austerity it had prescribed for the Greeks and its failure to require the up-front economic restructuring of Greece’s public debt had played an important role in the collapse of the Greek economy.
In contrast to the IMF’s attempt to learn from its past mistakes, the European Commission remains in complete denial about its role in the Greek economic debacle. Despite the very much worse Greek economic output than it had projected, today the European Commission issued a statement totally disagreeing with the IMF’s report. The Commission also intimated that were it to do it again, it would recommend very much the same policies as did before. This state of denial does not bode well for the future resolution of the European debt crisis since it is suggestive of the continued insistence by the Commission of the same failed policies of the past for the beleaguered European economic periphery.
If the European Commission’s state of denial is disturbing, so too is the ECB’s apparent lack of policy urgency. Despite acknowledging that the European economic recession in 2013 will be deeper than previously anticipated and despite recognizing that a lack of credit for small and medium-sized enterprises in the European periphery is delaying the European economic recovery, today the ECB chose to neither cut interest rates nor to introduce any new initiative that might get credit flowing again to the European periphery. This inaction hardly bodes well for any early European economic recovery and it could spell renewed trouble for the European economic periphery in the months ahead.