Nobel-winning economist Paul Krugman has warned that Sunday’s Greek election has not settled anything.
“The only way the euro might - might - be saved is if the Germans and the European Central Bank realize that they’re the ones who need to change their behavior, spending more and, yes, accepting higher inflation,” writes Krugman, the recipient of the 2008 Nobel Prize in economics, in his latest New York Times Op-Ed
“If not - well, Greece will basically go down in history as the victim of other people’s hubris.”
According to Krugman, who is a prolific author and blogger, the origins of this “disaster” do not lie in Greece, but in Brussels, Frankfurt and Berlin. He says Greece’s economic and political flaws (including corruption, tax evasion and a habit of living beyond its means) is not the real cause of the crisis that is currently ripping apart the country and threatening to spread across Europe.
“Greece, although not without sin, is mainly in trouble thanks to the arrogance of European officials, mostly from richer countries, who convinced themselves that they could make a single currency work without a single government,” Krugman writes. “And these same officials have made the situation even worse by insisting, in the teeth of the evidence, that all the currency’s troubles were caused by irresponsible behavior on the part of those Southern Europeans, and that everything would work out if only people were willing to suffer some more.”
Krugman, a professor at the Woodrow Wilson School of Public and International Affairs at Princeton University, blames Europe’s “deeply – perhaps fatally – flawed” monetary system.
“Fifteen years ago Greece was no paradise, but it wasn’t in crisis either,” writes the 59-year-old economist. “Unemployment was high but not catastrophic, and the nation more or less paid its way on world markets, earning enough from exports, tourism, shipping and other sources to more or less pay for its imports.”
According to Krugman, Greece’s troubles started when it decided to replace its drachma for the euro.
“A terrible thing happened,” he says. “People started believing that it was a safe place to invest. Foreign money poured into Greece, some but not all of it financing government deficits; the economy boomed; inflation rose; and Greece became increasingly uncompetitive. To be sure, the Greeks squandered much if not most of the money that came flooding in, but then so did everyone else who got caught up in the euro bubble.”
The bubble was bound to burst.
“Ask yourself, why does the dollar area – also known as the United States of America – more or less work, without the kind of severe regional crises now afflicting Europe? The answer is that we have a strong central government, and the activities of this government in effect provide automatic bailouts to states that get in trouble,” writes Krugman.
He asks the reader to think about what would have happened if Florida, in the aftermath of its huge housing bubble, had been forced to pay for Social Security and Medicare out of its own suddenly reduced revenues.
“Luckily for Florida, Washington rather than Tallahassee is picking up the tab, which means that Florida is in effect receiving a bailout on a scale no European nation could dream of,” he says.
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