Europe needs growth, not capital

What to make of Europe’s attempts to get the BRICs to invest in Europe’s peripheral sovereigns? Michael Pettis points out:

But the main issue is the sheer silliness of Europe’s asking for foreign money.  Any net increase in foreign capital inflows to Europe must be matched by a deterioration in Europe’s trade balance.  This will probably occur through a strengthening of the euro against the dollar.  And given weak domestic European demand, this means that either Europeans will buy from foreign manufacturers what they would have bought from European manufacturers, or it means Europe will export less.  Europe, in other words, is trading medium-term growth and employment for short-term financing for borrowers that should not be increasing their debt levels.

This is absurd.  Europe needs growth, not capital, and importing capital means exporting demand, which is now the world’s most valuable resource.  Increasing unemployment cannot possibly be the solution for Europe – especially when Spain just announced yesterday that unemployment was up to 21.5%.  But I guess postponing the crisis is more important than medium-term growth if you are looking to get reelected in the next year or so.

Read the whole piece.

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