Austerity According to St. Augustine

SANTIAGO – The guardians of austerity in Europe are striking back. Their emerging narrative goes like this:

When some economists spoke of panic and confidence crises, they meant their own. Bailout funds and Eurobonds were an invitation to moral hazard. Throwing money at the problem turned out to be unnecessary. Europe’s problem was an old-fashioned one: too much spending. Now that technocrats have replaced populists in the eurozone’s Mediterranean members, sustained fiscal austerity will get us out of trouble.

Sounds good, right? If only it were true.

To see how misguided this narrative is, imagine Europe today without the big gun of cheap three-year loans from the European Central Bank to the continent’s commercial banks. You do not have to be a dyed-in-the wool Keynesian to conjecture that southern European country risk would remain sky-high, and that talk of default would still be heard everywhere.