Elite Myopia: the people must be punished

Elite Myopia

by digby

Krugman says the Eurozone is still barreling down the road to nowhere even as their credit rating is being downgraded by the S&P. Here's why:

We also believe that the agreement [the latest euro rescue plan] is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU’s core and the so-called “periphery”. As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.
Angela Merkel today:

German chancellor Angela Merkel has called on eurozone governments speedily to implement tough new fiscal rules after Standard & Poor’s downgraded the credit ratings of France and Austria and seven other second-tier sovereigns.
This really has taken on the cast of ritual sacrifice now. It makes no sense, they just want to "purge the rottenness out of the system [so that] high costs of living and high living will come down. People will work harder, live a more moral life -- values will be adjusted, and enterprising people will pick up from less competent people." It's not economics it's religion.