Paul Krugman About Crisis

Paul Krugman says that the crisis in Greece shows that it was not good idea to introduced in the EU's common currency. Krugman argues with the thesis that the main cause of the Greek crisis was the lack of fiscal discipline of the local government. He thinks that behind all of the crisis problems there was not a waste of politicians, but only the arrogance of political elites, which pushed Europe to adopt the single currency before the country was ready for such an experiment.

He points out that other European countries like Spain, which, unlike Greece, had relatively little debt and a budget surplus, also fell into serious trouble as a result of the crisis of 2008 caused by "housing bubble", comes to artificial rise in the price of houses as a result of bank speculation in risky financial instruments. Krugman says that Spain, like other countries in similar situations could quickly overcome the crisis devaluing its national currency (peso) if it still had one. However, while using the euro they could regain competitiveness only through the slow process of deflation. Also Greek's remedy for the crisis would be devalued its national currency, but Greece also uses the euro. Krugman writes that all of this should not be a surprise. Long before the euro was adopted, economists have warned that Europe is not ready for a single, common currency. These warnings were ignored, and the crisis has come.

He admits, however, that the return of euro-zone countries to national currencies is virtually impossible. Krugman writes that the only possible way out to make euro starts to work, Europe must go much further toward a political union. He suggests that European countries should have start to operate more like U.S. states. The author says that it will not happen quickly. Because in the coming years there will be therefore rather painful process of watching a slow wading forward: reaching for

rescue packages combined with the demands of fiscal restraint, which will be accompanied by very high unemployment, consolidating by deflation.