Peter Bofinger 13.04.2012
We have the year 2012 A.D., it is Friday afternoon, 4.15 p.m., the whole university is orphaned. The whole university? No! A flock of eager for knowledge students does not stop to resist the approaching weekend and gathered in the Audimax. For this they recieve high praise from their professor right at the beginning. Viadrina-professor Georg Stadtmann invited a colleague from Würzburg, Professor Bofinger – a member of the German Council of Economic Experts –, in order to discuss the crisis in Europe. At first, Bofinger introduces to the still young second-term students the basic problems of macroeconomis: „Actually, the core question is always whether the crisis can be attributed to a political or a market failure. The answer differs depending on which (economic) political camp one belongs to.“ Afterwards, Bofinger analyzes the situation and first detects a failure on the part of the Central Bank, that implemented a too loose monetary policy and did not look very carefully, especially by lending to the banks. Thus, a speculative bubble could develop in the Spanish real estate market which now leads to stumbling of the banks and to a pressure on the Spanish budget. The situation in Greece can also be attributed to a political failure: The Greek government spent too much money and published falsified statistics. However, this actually did not concern anybody too much, neither the financial markets nor other European institutions.“ Thus, also the rating agencies which rated Greece positive for a long time are given their due.
„What must be done, so that the thumb finger again turns up for Europe?“ asks Stadtmann his colleague Bofinger. Bofinger explains that in the short run it is important that ECB stabilizes further, a direct purchase of government bonds shall also not be prohibited in the short run. Furthermore, euro states should issue bonds together in order for the interest burden of the states in financial trouble to not become too high. However, it is especially important that the applied tightening of spending is redesigned more moderately. In Greece and Spain there are already 50 % of youth and young adults unemployed. Further cuts cannot be born by these economies anymore and would therefore be counterproductive. The Swabian housewife can save by spending less. This does not affect her income situation at all. In a case of a state the situation is different: If a state saves the economy crumbles and unemployment occurs. As a result tax revenues decrease and the expenditure for the unemployed rises. The adjustment processes should be extended over time!
As Bofinger ends his presentation it is already 5.30 p.m. Nevertheless, there is still time for the questions of the students. Then the most are heading to the train station and in the direction of Berlin. The whole university is orphaned. Really the whole university? Yes, the whole university!