'Euro bail outs heading into a wall' warns top French economist

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Ireland has introduced its toughest austerity plan in history in return for a debt bail out by the European Union and International Monetary Fund. In an exclusive interview with Mediapart, French economist André Orléan warns such policies are "heading into a wall" and that Europe's "strategic inertia" leaves it "divided and powerless" in face of market pressures. It needs a New Deal, he argues, not austerity.

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A founder of the maverick Appalled Economists movement, prominent French economist André Orléan, specialised in finance and monetary policy, is a member of the French national scientific research centre, the CNRS. In this interview with Mediapart's Ludovic Lamant, he warns that European handling of the national debt crises is "heading straight into a wall" and decries the "total strategic inertia" of a "divided and powerless" Europe. He argues for a 1930s-style New Deal and against austerity measures under which "wage-earners pay the high revenues of financiers".

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MEDIAPART: After Greece in the spring, it's now Ireland's turn to come under attack. How serious is this for the euro zone?

André Orléan: This new crisis was predictable. It's following the same logic [as the previous one] which consists of managing public debt by reassuring financial markets. But it's very difficult to reassure the markets, when all you have to offer are austerity plans. These are based on weak growth and weak growth is the worst thing possible for an indebted country.

MEDIAPART: Is there anything different from the Greek crisis?

A.O.: The market reaction is different. The markets reacted very positively to the Greek plan of May 10th, 2010. Today, that's no longer the case. Other countries, which until now were not at risk, such as Italy, also saw their interest rate rise. In fact, the financial press is rather alarmist. It was not reassured by the Irish plan either.

With the Irish case everybody is waiting for the next case to crop up while slowly realising that this is not the right strategy. This case-by-case response, once the contamination hits a new country, doesn't work. We are going to move from one country to the next and increase the amount of European bailouts with each aid package. This will create recession which in turn will lead to even greater public debt problems causing debt to rise in an unmanaged fashion, without a clear outlook.

Nobody understands anything anymore. How can one get out of the spiral of debt if it is always allowed to rise? European policies have reached their limits. It's like a bottomless pit: the markets will never be reassured. Policies must be changed.

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