It’s worth noting that whatever economic problems the United States of America faces, those facing the hard-hit countries on the European “fringe” are dramatically worse:
This leaves peripheral countries in a trap: they cannot readily generate an external surplus; they cannot easily restart private sector borrowing; and they cannot easily sustain present fiscal deficits. Mass emigration would be a possibility, but surely not a recommendation. Mass immigration of wealthy foreigners, to live in now-cheap properties, would be far better. Yet, at worst, a lengthy slump might be needed to grind out a reduction in nominal prices and wages. Ireland seems to have accepted such a future. Spain and Greece have not. Moreover, the affected country would also suffer debt deflation: with falling nominal prices and wages, the real burden of debt denominated in euros will rise. A wave of defaults – private and even public – threaten.
If the European Union were a country, it’d be a country in pretty good shape. Better shape than the United States in many ways. But it’s not a country. And it’s not a nation. People don’t move around the way they do inside a country. So it can’t adjust to shocks in the way that a country would. This risk was known when the Euro was created, and the bet was basically made that there wouldn’t be a giant crisis. Or at any rate that if one did come down the road it might be far enough in the future for Europe to become a much deeper form of union. But the bet’s not paying of.
Previous in TP Yglesias
By clicking and submitting a comment I acknowledge the ThinkProgress Privacy Policy and agree to the ThinkProgress Terms of Use. I understand that my comments are also being governed by Facebook, Yahoo, AOL, or Hotmail’s Terms of Use and Privacy Policies as applicable, which can be found here.