"Putting it all together, it seems that the EZ crisis is more consistent with the systemic causes view than the local causes view. In other words, while they didn’t necessarily make the right decision every time, the peripheral EZ countries were up against powerful exogenous forces - capital flow bonanzas and sudden stops - that tended to push them toward financial crisis. They were playing against a stacked deck."
He goes on to talk about Causes of the Eurozone Crisis (Part 2): Policy Implications
Krugman also had a good piece on this a few days ago, Euro Zone Death Trip.
4 comments:
Does anyone talk about how to fix it? I get more and more depressed especially with poor Greece. We spent almost 4 weeks trolling through Greece in the eighties, mostly Peloponnesus, Crete and a few other islands. Greeks were poor but happy, did not work much at all and yes, sang and danced in the middle of a day during workweek. This is how they always lived. Then they cooked the books and got accepted into Eurozone.
And they had Olympics! I cannot even imagine how deeply they must be in trouble. It's a tourist country, they never produced anything of value to export. What can they possibly do now? Okay, they lied their way into euro but they should not be forced into depression.
Iceland is in the same boat except they are not tied to euro. So they just refused to pay their debts and went back to fishing. I say let Greece go back to drachma, default and become poor again on its own terms. We cannot all be Germany. Yes, it'll be painful but better than what they have now. And yes, it'll hit us all economically but better now than later, when even more money is wasted. I believe that euro has no chance of surviving. Amen.
Part 2 linked above says it pretty clearly "And let’s not kid ourselves about something: policy-makers in Europe know exactly how the crisis can be solved. It’s not a mystery that if the core EZ countries contribute sufficient funds to finance Greece’s debts for the foreseeable future, accept a substantial write-down on the amount owed by Greece, and provide funds to recapitalize banks in Greece and elsewhere in the EZ, then the crisis will be over."
From what I understand the Euro was fine in good times and was bad in bad times, too limiting on monetary policy. But unwinding it will be pretty painful, so I don't think it's going away anytime soon.
The way I see it this crisis was inevitable from the very start. All of a sudden, any country, Greece included, could borrow in Euros and they did. No due diligence was done by the IMF, kind of like subprime mortgages here. Germany was only too happy to loan because all of a sudden it could sell all its pacemakers not for worthless drachmas but for Euros. And so it went until repayments became a problem. Every troubled country had its own path to ruin. Irish had a real estate bust, so did Spain and so on. How could it ever work? Germany profited immensely by exporting its precise machinery and being paid in real money. Now they are only too happy to ascribe their economic success to some special Teutonic values. They even tell Greeks to start selling their islands in order to raise money... I don't think that Euro was ever good. It was convenient for commerce and a horrible trap for poorer countries.
We agree. (Though at the time I had no opinion on the matter.)
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