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Thursday, July 21, 2011

Cargo Cult of Rescue Packages

Today a second--this time EUR 109 billion--west European financial package was announced. The aim: saving the ailing Euro or, in Sarkozy's words, "prevention of contagion." There are many angles to this new arrangement. Let's focus, for a moment, on its size. Together with the last package that arrived in May 2010--which amounted to 440 bn Euros--the Euro is now propped up by a fund of 549 bn Eur. According to an online currency converter, this is equivalent to approximately 804 bn USD at today's rates. Using Angus Maddison's estimates of economic performance, a dataset of which I have made copious use in the writing of The European Union and Global Social Change, this comes to over 1.5% of the Gross World Product, more than 11% of the summary GDP of the Euro-zone, and almost half of the total GDP of Africa. Keep this in mind, when you hear west Europeans talk about the significance of fiscal discipline for indebted nations.

cover page of the book

cover page of the book
image used for the cover design by Anannya Dasgupta