The European Union will make a “now or never” plea for stronger global financial regulation at next month’s G20 summit, but will rule out more fiscal expansion to conquer the recession, EU policymakers said on Thursday.
That is bad news. Fixing financial regulation is OK, but that cannot be the top priority right now. The fall in aggregate demand has triggered a fall in investment, deflationary tendencies and a fall in investment. Once we are in deflationary territory, economic activity will jump downwards and be very difficult to get up again. Who wants to buy (or produce) now and sell later in a climate of falling prices?
By the way, Paul Krugman says the same thing in an interview with German weekly Der Spiegel.
