Eurozone: fundamental flaws
MADRID | By JP Marín Arrese | Potential mismatches between overall demand and supply can provide rather upsetting lessons. As Keynes proved, sticking to stability policies in a recession only widens the gap as slackening demand and production drag each other down in an endless spiraling circle. Moreover, he cast serious doubts on the strategy of combining loose monetary policy with balanced budgets for putting the economy back on track. His liquidity trap theory mirrors Draghi’s current warnings on the ECB’s limits in coping with a huge GDP gap.