May 02, 2012
That fact should have mentioned prominently in an NYT article discussing the debate over the adoption of the European Union’s stability pact by Ireland. The pact only places restrictions on deficits and debt in the public sector.
However Ireland had no problem with debt or deficits in the public sector, it was running budget surpluses until the crisis hit and it had a very low ratio of debt to GDP. Ireland’s problem was the buildup of massive private sector debt, which fueled an enormous housing bubble.
Unfortunately, the European Union has no proposals to do anything to prevent the sort of asset bubbles, the collapse of which has led to the current crisis. The European Central Bank (ECB), the obvious institution to carry this responsibility, insists that its only job is to target 2.0 percent inflation.
This means that the ECB will consider its job well done even if an outhouse in Ireland costs $50 million euros or there is 50 percent unemployment, as long as the inflation rate is 2.0 percent. This situation should have been made clear to readers.
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