------------------------------------------------------------------------------
http://www.nytimes.com/2012/05/18/opinion/krugman-apocalypse-fairly-soon.html?
Suddenly, it has become easy to see how the euro — that grand, flawed experiment in monetary union without political union — could come apart at the seams. We’re not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years. And the costs — both economic and, arguably even more important, political — could be huge.
This doesn’t have to happen; the euro (or at least most of it) could
still be saved. But this will require that European leaders, especially
in Germany and at the European Central Bank, start acting very
differently from the way they’ve acted these past few years. They need
to stop moralizing and deal with reality; they need to stop temporizing
and, for once, get ahead of the curve.
I wish I could say that I was optimistic.
The story so far: When the euro came into existence, there was a great
wave of optimism in Europe — and that, it turned out, was the worst
thing that could have happened. Money poured into Spain and other
nations, which were now seen as safe investments; this flood of capital
fueled huge housing bubbles and huge trade deficits. Then, with the
financial crisis of 2008, the flood dried up, causing severe slumps in
the very nations that had boomed before.
At that point, Europe’s lack of political union became a severe
liability. Florida and Spain both had housing bubbles, but when
Florida’s bubble burst, retirees could still count on getting their
Social Security and Medicare checks from Washington. Spain receives no
comparable support. So the burst bubble turned into a fiscal crisis,
too.
Europe’s answer has been austerity: savage spending cuts in an attempt
to reassure bond markets. Yet as any sensible economist could have told
you (and we did, we did), these cuts deepened the depression in Europe’s
troubled economies, which both further undermined investor confidence
and led to growing political instability.
And now comes the moment of truth.
Greece is, for the moment, the focal point. Voters who are
understandably angry at policies that have produced 22 percent
unemployment — more than 50 percent among the young — turned on the
parties enforcing those policies. And because the entire Greek political
establishment was, in effect, bullied into endorsing a doomed economic
orthodoxy, the result of voter revulsion has been rising power for
extremists. Even if the polls are wrong and the governing coalition
somehow ekes out a majority in the next round of voting, this game is
basically up: Greece won’t, can’t pursue the policies that Germany and
the European Central Bank are demanding.
So now what? Right now, Greece is experiencing what’s being called a
“bank jog” — a somewhat slow-motion bank run, as more and more
depositors pull out their cash in anticipation of a possible Greek exit
from the euro. Europe’s central bank is, in effect, financing this bank
run by lending Greece the necessary euros; if and (probably) when the
central bank decides it can lend no more, Greece will be forced to
abandon the euro and issue its own currency again.
This demonstration that the euro is, in fact, reversible would lead, in
turn, to runs on Spanish and Italian banks. Once again the European
Central Bank would have to choose whether to provide open-ended
financing; if it were to say no, the euro as a whole would blow up.
Yet financing isn’t enough. Italy and, in particular, Spain must be
offered hope — an economic environment in which they have some
reasonable prospect of emerging from austerity and depression.
Realistically, the only way to provide such an environment would be for
the central bank to drop its obsession with price stability, to accept
and indeed encourage several years of 3 percent or 4 percent inflation
in Europe (and more than that in Germany).
Both the central bankers and the Germans hate this idea, but it’s the
only plausible way the euro might be saved. For the past two-and-a-half
years, European leaders have responded to crisis with half-measures that
buy time, yet they have made no use of that time. Now time has run out.
So will Europe finally rise to the occasion? Let’s hope so — and not
just because a euro breakup would have negative ripple effects
throughout the world. For the biggest costs of European policy failure
would probably be political.
Think of it this way: Failure of the euro would amount to a huge defeat
for the broader European project, the attempt to bring peace, prosperity
and democracy to a continent with a terrible history. It would also
have much the same effect that the failure of austerity is having in
Greece, discrediting the political mainstream and empowering extremists.
All of us, then, have a big stake in European success — yet it’s up to
the Europeans themselves to deliver that success. The whole world is
waiting to see whether they’re up to the task.
No comments:
Post a Comment