Paul Krugman argues that “austerity” has failed in Europe and that Greece and other countries need to restructure their debts.
The spending cuts that Greece, et al, have implemented to try to fix their finances have actually made the problem worse–because they have reduced government revenues. Meanwhile, the renewed “confidence” that was supposed to fire up the private sector when governments got their fiscal houses in order has failed to appear.
Krugman sees only one reasonable way out: A debt restructuring in which debtholders are given haircuts on their bonds. He says the ECB is in complete denial about this and appears to be trying to push the Euro-zone into a financial crisis.