As Europe’s ongoing debt crisis continues to weigh on the markets, Jim Cramer outlined what he thinks European policymakers need to do.
First, Cramer said Europeans need to be able to find jobs. Government needs to play a role in promoting job growth, he said, even though many of these same governments are being told to scale back their operations if they want the backing of the European Union. Cramer thinks the EU should change its mind, though.
“If these governments are going to try to create jobs in order to get a multiplier effect going — more workers means more taxes get paid and more products get consumed — then they need help,” Cramer argued. “Without those jobs, the sovereign debt will be under pressure because the tax receipts won’t cover the debt. No amount of austerity can save them without hiring.”
Cramer suggests the EU execute a large-scale program to aid troubled countries, in which monetary support is given to participating countries for the purpose of hiring workers to build needed infrastructure improvements. Such a program would deal with unemployment while making an investment in the region’s infrastructure, Cramer said.
Second, Cramer said Europeans need a reason to keep their money in their local bank. In Greece, Italy and Spain, people have been withdrawing funds because they fear that the euro will suddenly be replaced with another currency.
“We need a super European Central Bank on top of the regular deposit insurance, one that insures people in euros,” Cramer said. “Then there’s no incentive to pull the money out, so the banks can stabilize.”
Both of these solutions could happen, Cramer said, but the Germans won’t have it because they fear the amount of insurance and stimulus money would debase the euro. But Cramer fears that without these two measures, the euro could split apart.
“There will be an intense devaluation of the new currencies, the countries will default, their banks will be seized by the state, and they will have to start all over again,” Cramer continued. “The troubled countries will be plunged into depressions and then spring back, not unlike Argentina’s default and devaluation in 1990 and 1991.”
Regardless, Cramer thinks Europe needs to make some tough decisions. As the Germans are worried about inflations, though, and the other European countries aren’t facing a severe depression, Cramer doubts any action will be taken any time soon.
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