ECB Economic Bulletin 03/2016-Article 2 says the following (ht: twitter handle of :
Many euro area countries did not take advantage of the favourable economic
conditions prior to the crisis to build up fiscal buffers for future downturns. [Link]
IMF Euroarea Article IV Consultation Report last year said this:
Most high-debt countries have so far not saved the windfall interest reductions from monetary accommodation (text figure). It is important to make decisive progress on fiscal adjustment before monetary accommodation is reduced. [Link]
I had blogged on the IMF Article IV Report earlier – few months ago – because, in the same breath, IMF advised the European Central Bank to maintain monetary accommodation. In the same report, the Fund had also noted the following:
Contrary to staff’s advice, however, most of the more highly indebted countries are expected to ease in 2017, including France, Italy and Portugal. [Link]
So, the ECB concedes that, prior to the crisis of 2008, European countries did not take advantage of favourable economic conditions – which was chiefly about low bond yields. Post-crisis, IMF observes that debtor nations had not saved the windfall interest deductions. So, the message is simple: benefits from low interest rate are always squandered.
Clearly, both of them are not getting it and that is why one is continuing to advice and the other is continuing to stick to easy money policies. Individuals and institutions do not reform with easy money. The opposite happens. In tough times, they reform. Only when the status quo is made untenable, do people change. So do institutions, companies, sovereigns.
Wrong thought process; flawed understanding of human behaviour; wrong policy prescription and then a warning that is too late as the Fund issued in April 2018 warning of excessive borrowing!
That was from ‘Financial Times’ dated April 18, 2018.
Can it get sillier than this?