Markets are thrilled that Europe finally cut a deal, "however vague the details and however inadequate it may prove," writes Paul Krugman in the New York Times. The deal is better than nothing, he writes, but it once again highlights the misguided doctrine he says is doing great harm to the US and Europe: the idea "that, in the aftermath of a financial crisis, banks must be bailed out but the general public must pay the price." At a time when governments should be spending to create jobs, they're buying into the false notion that austerity will work instead.
What else to do? Look to Iceland, he suggests. The nation was headed toward "economic Armageddon" after its bankers left the country with huge debt. But "where everyone else bailed out the bankers and made the public pay the price, Iceland let the banks go bust and actually expanded its social safety net," writes Krugman. Iceland still suffered, but it "managed to limit both the rise in unemployment and the suffering of the most vulnerable." The rest of the world could learn a lesson.