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What's going on in Europe?

Paul Krugman is annoyed by efforts to suggest that the problems of Greece, Spain and other small countries in the Eurozone's weak economic alliance are simply the result of fiscal profligacy:

The truth is that lack of fiscal discipline isn’t the whole, or even the main, source of Europe’s troubles — not even in Greece, whose government was indeed irresponsible (and hid its irresponsibility with creative accounting).

No, the real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment. [...]

None of this should come as a big surprise. Long before the euro came into being, economists warned that Europe wasn’t ready for a single currency. But these warnings were ignored, and the crisis came.

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.

The whole column is good.

By Ezra Klein  |  February 15, 2010; 5:01 PM ET
 
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Comments

" 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"

haha...good luck with that!

and good luck
using the present economic system of the united "states"
as a model for stability right now.

Posted by: jkaren | February 15, 2010 5:25 PM | Report abuse

"No, the real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment."

I am truly thankful that those same policy elites did not push Europe into adopting a single health care system well before the continent was ready for such an experiment: the various States of Europe seem to do quite nicely with their independent health care systems, each State's system serving a relatively small population living together in a relatively geographically-distinct area.

Imagine the hubris of attempting to create a centrally-run health care system able to serve the needs of the 250,000,000 Europeans scattered over a region almost as vast as... well... the United States.

It's a good comparative lesson.

Posted by: rmgregory | February 15, 2010 5:25 PM | Report abuse

The problem isn't fiscal profligacy, but rather that policy elites set up a system that permitted these countries to be fiscally profligate?

Posted by: tomtildrum | February 15, 2010 5:51 PM | Report abuse

tomtildrum, I think the argument is that Europe's kind of halfway between being separate countries and something like the relationship between the U.S. states. So the various countries aren't allowed to react independently as they may need to to an economic crisis but there's no institutional history of reacting together either.

Posted by: MosBen | February 15, 2010 6:08 PM | Report abuse

rmgregory says:

"Imagine the hubris of attempting to create a centrally-run health care system able to serve the needs of the 250,000,000 Europeans scattered over a region almost as vast as... well... the United States."

OK, so much wrong with this. The main one is: the U.S. is a single country, not a collection of quite different ones. Even though the states may have different laws, the differences among the U.S. states is not even close to the differences among European countries. A "centrally-run" healthcare system would not be a total disaster in the U.S. ... on the contrary, we have a couple of existing ones that function quite nicely (Medicare and Veteran's Administration).

The U.S. has a single federal government that is capable of providing a unified playing field in all the states -- something that is utterly impossible in Europe at present. In fact, this is Krugman's main point: the European Union went ahead with a unified currency, with no ability to provide the unified, continent-wide political structure necessary to make it work.

Posted by: katrina92886 | February 15, 2010 6:20 PM | Report abuse

I got a lot of 'pushback' from my friends when calling Krugman an idiot. They cited that he was a nobel prize winner.

That was until Obama won one for essentially nothing and the IPCC won one for telling a bunch of lies.

Krugman still believes Keynes.

Posted by: WrongfulDeath | February 15, 2010 6:26 PM | Report abuse

This was always the point.

Posted by: albamus | February 15, 2010 6:39 PM | Report abuse

Krugman mostly wrote fairly insightful columns when Bush II was president. Since Obama became president he is the same as Dionne, always blame Bush II, Republicans for everything, always praise for Obama. His columns have become predictable and boring. Both seem to be vying for a job in the white house communications, propaganda, office.

Posted by: Aprogressiveindependent | February 15, 2010 6:57 PM | Report abuse

"Krugman still believes Keynes."

Yes, of course he does. Why wouldn't he?

Posted by: adamiani | February 15, 2010 7:50 PM | Report abuse

I am not so sure whether the whole column is good or not. Everyone knows that Euro as a single currency without 'political union' (read as an ability to withstand Labor Union) is a tough proposition to go about. And you know Ezra, even Megan speculated that 10 years back! Talk about Megan getting something right - that is possible failures of Euro currency...

The other shtick of Krugman to link everything into a war against those demanding 'fiscal restrains'; I am bored of it. No matter how many times he keeps saying that, politically that is the battle folks like him have lost - spending Fed money in recession. That was all about MA loss and today's Evan Bayh's resignation (Lane has a great column about that) is another one.

Agreed, it was same thing (lonely voice) when Krugman was waging a war against Bush's Iraq aggression. But here Dems themselves have lost this political battle due to their ineptitude - they could never complete their job. So I am not sure what is the point of Krugman's 'straw man argument'. Americans would have accepted Fed spending only if Dems had been more alert, sharp and totally united. They are mess and that is costing Americans.

Posted by: umesh409 | February 15, 2010 11:17 PM | Report abuse

The Euro probably should break up. The Euro-area clearly is larger than an optimal currency area.

I'm not sure why it ever made sense to have Germany, Italy and Greece all share the same monetary policy. I have no idea what sort of boundaries in Europe make for optimal currency areas, but I'm fairly sure that no optimal currency area includes Germany, Italy and Greece all together.

Posted by: justin84 | February 16, 2010 9:13 AM | Report abuse

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