slipping down the pot-holed road of recession towards the sink hole of depression

Paul Krugman remarks below could easily apply to Canada, for it is essentially homeowners with their massively extended debt load who have bumped our debt to GDP ratio up to 203%, and we too require expansionary fiscal and monetary policies to support the Canadian economy.  We won't be getting them from Flaherty or Carney, of course, the latter linked, after all, to the vampire squib in NYC and the former a devotee of pathological austerity.  I fear all three jurisdictions slowly but inevitably slipping down the pot-holed  road  of recession towards the sink hole of  depression.

 "The combination of austerity-for-all and a central bank morbidly obsessed with inflation makes it essentially impossible for indebted countries [in the EU] to escape from their debt trap and is, therefore, a recipe for widespread debt defaults, bank runs and general financial collapse.

... In America, as in Europe, the economy is being dragged down by troubled debtors — in our case, mainly homeowners. And here, too, we desperately need expansionary fiscal and monetary policies to support the economy as these debtors struggle back to financial health. Yet, as in Europe, public discourse is dominated by deficit scolds and inflation obsessives." 

Killing the Euro - NYTimes.com

Elsewhere, Krugman says that "Europe’s march toward a common currency was, from the beginning, a dubious project on any objective economic analysis" - one doomed to failure.  As I've suggested more than once, the process will be slow, but potentially this could happen over that dragged out process:  If Europe goes, the U.S. goes, and if the U.S.  goes, Canada goes.

 Boring, Cruel Euro Romantics - NYTimes.com

Krugman: His Lucid Best on Euro Crisis and Its Implications

Legends of the Fail - NYTimes.com

Borrowing, if you must, in your own sovereign currency matters, and austerity never works, especially during a recession. Here are the facts, though I coud add the caveat if I were a neoclassical economist that those high interest rates for Spain and Italy are also, no matter what the currency, the result of lack of investor confidence in the economies of those countries. But I'm not, so I'll just say had the countries been able to manipulate fiscal and monetary policy with their own currencies instead of being locked into the Euro, which is controlled by the more wealthy EU countries - namely, Germany and France - there would be no investor confidence issue.

"... if you look around the world you see that the big determining factor for interest rates isn’t the level of government debt but whether a government borrows in its own currency. Japan is much more deeply in debt than Italy, but the interest rate on long-term Japanese bonds is only about 1 percent to Italy’s 7 percent. Britain’s fiscal prospects look worse than Spain’s, but Britain can borrow at just a bit over 2 percent, while Spain is paying almost 6 percent.

What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else’s currency, with all the loss of flexibility that implies. In particular, since euro-area countries can’t print money even in an emergency, they’re subject to funding disruptions in a way that nations that kept their own currencies aren’t — and the result is what you see right now. America, which borrows in dollars, doesn’t have that problem.

The other thing you need to know is that in the face of the current crisis, austerity has been a failure everywhere it has been tried: no country with significant debts has managed to slash its way back into the good graces of the financial markets. For example, Ireland is the good boy of Europe, having responded to its debt problems with savage austerity that has driven its unemployment rate to 14 percent. Yet the interest rate on Irish bonds is still above 8 percent — worse than Italy."

See too my earlier posts:
Pathological Commitment to the Ideology of Austerity Brings Only Economic Stagnation
Fiscal Austerity: Does it Work?

Cancelling the Greek Referendum and Angela Merkel's Steely Focus

Two final thoughts today on the Greek crisis: 1) Under immense political pressure from within his own party, the opposition, and the EU - i.e., Germany - Papandreou was forced to cancel the referendum. But the basic idea was a good one: he knew Germany would demand even more austerity as part of the bailout payments, but he also knew how much horrible economic pain and suffering has already been inflicted on his people by the current austerity regime. As Mark Carney recognized, seeking their consent was the right thing for a democratic leader to do, as challenging as that would be given the circumstances. 2) Ms Merkel doesn't really care about Greece: all she cares about, as she has made clear yesterday, is stabilizing the Euro. That's all anyone else in the EU, for that matter, cares about too.