Krugman on Europe

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Excellent explanatory column on the European economic mess. Since Krugman’s targets are foreigners rather than American politicians, I bet even right-of-center Americans won’t deem it problematically shrill.

A bit of the conclusion:

Now what? A breakup of the euro is very nearly unthinkable, as a sheer matter of practicality. As Berkeley’s Barry Eichengreen puts it, an attempt to reintroduce a national currency would trigger “the mother of all financial crises.” So the only way out is forward: to make the euro work, Europe needs to move much further toward political union, so that European nations start to function more like American states. […] It’s an ugly picture. But it’s important to understand the nature of Europe’s fatal flaw. Yes, some governments were irresponsible; but the fundamental problem was hubris, the arrogant belief that Europe could make a single currency work despite strong reasons to believe that it wasn’t ready.

I think the darker interpretation is that this isn’t so much hubris-driven failure as it is catastrophic success. People who wanted a deeper political union than the political situation would support pressed ahead with a monetary union that they hoped would eventually force deeper integration. And now it’s happening.

Another possible interpretation is that we’re seeing a “success” of the German mania for hard money. If Europe had separate currencies, Greece would still be in terrible shape but Spain, Ireland, and Portugal would be devaluing like mad and probably Italy would as well. That would put domestic political pressure on the Bundesbank to engage in expansionary policies, and German central bankers like nothing less than expansionary monetary policy. So by locking the fringe a monetary union, the Germans get to indulge their preference for hard money at no higher price than mass unemployment in southern Europe.