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?

No. Spain was a mess to start with. Were Spanish labour costs ever near the EU averages?

What does Krugman mean by move much further toward political union?

Most people are stuck in a mindset where the only option is for the EU to turn into a Federal state like the US which, of course, is the best possible model.

We need an 18th C solution to a 21st C problem. That's the ticket.

All germans, britons and north europeans retired to Spain also receive their checks from their countries.

GDP was down 24% in Latvia in 2009 and unemployment up more or less to the same amount, and wages are going down the toilette, but the prices stick high. Where are the benefits of "inside devaluation" in this case?

Lot's of holes in Krugman column.

The part of taxation that goes directly to the federal level in Europe is too small, and so is the part of european federal money that goes down to states.
K. also criticise the decision to make the euro for this reason (but do not ask for its removal)

I personnally think that the euro was a purely political decision. I remember the critics at the time of the euro from people (journalists and experts) afraid that the currency might not get popular support, and that people would prefer go on using national currencies. I was astounded at the time that bright economic or political pundits could think that this could happen. Or that there could be problems with new banknotes on the eve of 2002. This was and is completely missing the point that money is a political construction only, existing because of the will of states (and people's Maastricht treaty ratification in this case), and which value disappears with the state itself. (apart from the coin collector's or intrinsic value, which for paper-made banknotes is around a few cents/unit).

Today I believe we have the same kind of thought that goes on: the euro is in crisis, because some economic agents think of it in pure economic terms. But this is not the case: the euro is political, and while the majority of european states and people consent to the greek presence in Europe, there will be no possibility to avoid helping the greek government in financing its debt, and there will be no  possibility for Greece to go.

I would be much more worried if there was a continent wide media campaign against Greece, to shun the greeks as second level citizens of the Union, as aliens not deserving to be part of UE, like there may be for Turquey adhesion process.

Krugman knows about the political side of the issue, even if his columns are centered on his speciality: the economic side of it.
Nevertheless, I feel while reading him, that he aknowledges perfectly the non-economic side of the euro, when he asks for a stronger federal level in Europe.

Perhaps the media campaign on Greece, Spain, Portugal and Italy has to do with the low level of approval of a political european union in Britain: the political implications of the euros would be discarded by people who can't comprehend it.

My feeling here, is that the media are off point, and that in a few year's time a new treaty will focus on the adequate management of asymetric crisis in the frame of the monetary Union. Hope it will not get beleaguered by left-wing french ideologues...(snark)

There is a difference between setting up effective structural arrangements for macro economic management and the particular economic and political policies that are followed by those structural arrangements. In this column and in previous writing on the subject I understand Krugman to be saying that the European Monetary Union lacks adequate structural arrangements to respond to economic crisis. The present crisis is of sufficient magnitude to make what some have long predicted dramatically visible.

Krugman is not advocating a dissolution of the monetary union or of the EU as a whole. He is saying that action needs to be taken to fix the structural problems.

The nation's core economic problem is that costs and prices have gotten out of line with those in the rest of Europe.

It's not easy to compare absolute unit labour costs (the stats dbases present them in year-on-year growth), but here's a (pretty boring) chart of annual average employee compensation in $US PPP-adjusted.

Click and hold to enlarge Source OECD

Germany stands a little above the Euro (to-be) zone average in 1999, but ends below it after a decade of wage austerity. With a slack period in the mid-'00s, Spain, overall, follows the Eurozone trend. No sign of ballooning wages there. And, of course, in the absolute, Spanish wages are lower than the Eurozone average.

If there's a "core economic problem" for Spain, isn't it that too much of GDP was based on construction and property? And did that bubble stem from the euro?

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]

Of course. Free movement of labor is in there in the treaties.

and keep labor costs [and thus "relative inflation"] down?

Perhaps not.

Without knowing anything about Spanish wages, I would say that it could be the case that despite having every legal right to move to Spain and work there, workers form other nations might not have in sufficient amount to keep wages down. And that could then depend on hesitancy to leave for another culture and another language as long as there was ways to make things work back home. The EU does not have one language, and though english serves as a lingua franca, it might not be enough to make people move en masse. Better economic security then in the US might also give more incitements not to move.

If so, the problem with the euro is not to weak federal level, it is to dissimilar cultures and to good social programs. But what if commercialism and neolib reforms should be able to cure that?

Of course then the big question comes: do we want the US system of labor hunting employment, moving and sloshing all over the continent, creating boom towns and abandoned towns as it goes? Should there not be better ways of dealing with booms then hunting after them?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

Also see Eurozone Economic Governance

And in reference to that, this is exactly the debate economists like Krugman have been gearing up for since pretty much the creation of the Euro - disparate development, assymetric shocks. The current situation is far from assymetric to my eyes. Political and economic interests are largely aligned. My hunch is that they're exaggerating the problems because of mental maps years of largely speculative debate have created.

I don't really see a currency problem at all.  I see an economic activity problem in Greece and a severe slowdown in Spain (equal to the severe run-up in construction aka totally predictable).  How does any of this damage the Euro is any significant way?  Sure it affects "investor confidence" and "speculators" but that is merely sentiment and market games, not actual economic activity.

My point is that all of these articles argue for the use of "tools" that are apparently the "only way" to avoid "currency problems" and none of it is relevant to a situation where the currency is shared but not entirely centralized.  

I think the real fear is that the Eurozone is about to prove that all of the austerity measures and neo-con economic policy is absolutely bollocks.  Inflationary wages?  Possibly good for the economy, especially if it's occurring in only part of the zone.  

They can't seem to get past the idea that there isn't a "EUROZONE" so much as there are Euro zones.  They have thrown their lot in together and as we see Germany seems to be willing to help their coalition partner out just like they said they would.  Is there any doubt that Greece will be forced to be more like Germany in their economic future?  Of course not, to do otherwise would be politically insane domestically.

The more of these articles I see the more I'm thinking that we're watching something very good happening.

Another question: why was it okay for France and Germany to redefine away their own breaches of the Growth and Stability (Suicide) Pact in 2005 but now that everyone is in the shit they pretend it's all Southern Europe's fault for messing with their beloved D-Mark?

Final question: do we really want a German to become head of the BundesbankECB at this juncture? (Yeah, that was an interesting lapsus on my part right there...)

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

If I were the governor of California, cursed with an insoluble budget crisis, and if I had asked the federal government for help and been rebuffed, and if I hailed from Europe and noticed that the European Union had agreed -- in principle at least -- to bail out Greece, I might be mumbling, "Vut gives?"

When Greece (a charming though relatively piddling land) comes calling in Brussels, it gets embraced (and lectured); when California (an economic powerhouse) comes calling in Washington, it gets, almost universally, the cold shoulder.

The reason France and the other economic powerhouses of Europe have said they will ride to Greece's rescue is that they share a common currency, and Greece's default could wreak havoc with the value and viability of the euro and, by extension, with the whole of the European economy. But California and the United States share a common currency as well.

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For now, the European Union is showing itself to be a more functional federation than the United States. You don't have to be an Austrian-born California governor to think, "How crazy is dat?"