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The 7 Most Misguided Growth-Killing Government Decisions of 2012


The European crisis, American inaction, Japanese inflation, and more.

This story by Tim Fernholz originally appeared on Quartz.
The year 2012 was another big one for the world's economic policymakers, with plenty of agita around the European financial crisis, stimulus plans in China, and particularly big advances in the science of central banking. Let's set aside the more prosaic failures of crony capitalism and corruption to focus on those who really should have done better. Here are seven of the biggest mistakes public officials made trying, and failing, to bolster global prosperity:

1. Mario Draghi tricked Europe. In the summer of 2012, Europe was in one of the darker moments of its ongoing financial crisis, with Spain and Italy feeling pressure from creditors, Greece toppling and the region heading for recession. Then, European Central Bank chief Mario Draghi, not even a year into his job, promised in a speech that he would "do whatever it takes to save the euro." Markets rallied! But at the Bank's next meeting in August, Draghi didn't do anything. Markets dropped! Draghi would eventually announce plans to buy bonds from European countries that adopted fiscal consolidation programs, but he didn't do anyone a favor by waiting for the opportunity.

2. The US didn't do anything meaningful on economic policy all year. Relative decline or no, the US is still the world's biggest economy, and its policymakers-with the important exception of the Federal Reserve-spent 2012 doing absolutely nothing. The reasons why are obvious: A divided government in an election year isn't a great venue for accomplishment. But consider what could have been done: needed stimulus to bolster the country's slow economy and fight unemployment; a measured fiscal consolidation rather than the six-week race to the edge of the fiscal cliff; or structural reforms, like fixing the country's broken immigration system, passing a climate change bill or cleaning up the convoluted tax code.

3. The EU didn't write down Greek bonds. Well, you can't fault Christine Lagarde for trying-the IMF Director forced a confrontation with the ECB and the European Commission (read: Angela Merkel's austerity-focused Germany) in an attempt to forgive some of Greece's unsustainable debt load. The Troika's ultimate deal didn't include haircuts on Greek debt, though it did include some concessions on interest rates and repayment time. Punting on debt forgiveness may not look very wise in hindsight, however: Though Greece's credit rating has been upgraded (from selective default) thanks to the support from the rest of the EU, it still has bleak economic prospects. That debt is going to be written down sooner or later, and sooner would probably have been better.

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