Must-read: Barry Eichengreen: “The Case for a Grand Bargain”

Must-Read: Barry Eichengreen: The Case for a Grand Bargain: “What would it take for all this to happen?…

…First, there would have to be a reassertion of non-ideological economic common sense in U.S. and German policy making circles. One doesn’t have to be a Keynesian to believe that record low interest rates in both countries create a once-in-a-lifetime opportunity for infrastructure spending or to acknowledge that there are aspects of public infrastructure in both countries desperately in need of repair.

Second, central banks in countries lacking fiscal space would have to do more. This means not just talking down the exchange rate as a way of enhancing competitiveness but taking steps to encourage domestic spending, for example ramping up domestic [financial] security purchases still further, and ignoring domestic opposition.

Third, emerging markets and Southern European countries would have to make a credible commitment to structural reform. The need is there, quite independent of international coordination. But without this commitment, international coordination is off the table.

Skeptics will say that I am a dreamer for imagining this grand bargain. But the alternative to this dream is an ongoing economic nightmare.