As Europe continues to struggle in the third year of its debt crisis, Jeffrey Sachs, professor at Columbia University says Europe’s problems stem from its banking sector.
In an interview with Bloomberg TV Sachs said current responses to Europe’s crisis have been too simple. He first took a pot shot at economist Larry Summers:
“Larry Summers today says choose growth not austerity, as if growth is a choice not an outcome, it’s just making it all too simple in my view to say all we have to do is raise larger budget deficits and things will be fine.”
He then said German policymakers were operating with “blinders on” and that the one-track austerity path has failed and isn’t good enough for Europe. Talking about the austerity protests in Europe he said:
“It’s a complaint against the oversimplification of policy but not with clear alternative direction that I think is the reality right now. Which is, what Germany has been saying isn’t so clever, isn’t working well, isn’t integrating finance, money and fiscal policy and you need something a little more complicated unfortunately.”
Finally, when asked if he agreed with Paul Krugman’s criticism of zombie economics in Europe he said:
“Although I think Paul is also oversimplifying because he just likes big budget deficits and for Paul there’s never enough fiscal stimulus, and he says don’t worry about the debt as if you can just turn your back on it. So I think that’s another case of just trying to sell the easy way out, that sure there’s a solution, stop worrying about the deficit, stop worrying about the debt. I don’t buy that.”
Sachs said European policy needs to address the problems with its banking sector and financial sector, and while Europe should worry about deficit and debt, he would like to see more tax increases and less spending cuts.”