Wed Feb 17th, 2010 at 05:16:23 AM EST
In his latest column, "The Making of a Euromess", Paul Krugman gets pretty harsh on Europe's "elites" --
specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment
-- and concludes that now that they have gotten Europe into this mess (Greece, etc.), there is only one way out:
to move much further toward political union, so that European nations start to function more like American states.
(The alternative of breaking up the euro zone back into national currencies would be the "mother of financial crises", even if it were practically possible, which it isn't.)
[Update note: Originally posted as "The 'Euromess' as spur towards more political (European) union", but changed title to be shorter and more to the point that interests me.]
frontpaged - Nomad
While Krugman acknowledges that Greek fiscal irresponsibility and financial shenanigans are partly to blame for the current crisis, he argues that its more fundamental cause is the restrictions in resources and policy options that the single currency imposes on the governments of individual Euro countries facing economic difficulties.
The first question I have regarding Krugman's piece is from the following passage:
Now, if Spain were an American state rather than a European country, things wouldn't be so bad. For one thing, costs and prices wouldn't have gotten so far out of line: Florida, which among other things was freely able to attract workers from other states and keep labor costs down, never experienced anything like Spain's relative inflation. For another, Spain would be receiving a lot of automatic support in the crisis: Florida's housing boom has gone bust, but Washington keeps sending the Social Security and Medicare checks.
Wasn't Spain, as part of the European Union, freely able to attract workers from other states [that is, other countries in the European Union] and keep labor costs [and thus "relative inflation"] down?
My other question is more basic: What does Krugman mean by move much further toward political union? The passage above suggests Europe-wide social welfare benefits for countries having a hard time economically, but doesn't the EU already provide financial support or at least offer breaks to countries who need it? In any case, these seem to be economic devices, not political. What "political" structures or mechanisms could Krugman have in mind that would have staved off the current crisis?