Europe’s grim choices
Written by on June 05, 2012, 09:15 AM
By Robert J. Samuelson
The Washington Post
Europe is at the abyss — again. Its turmoil is rattling global stock markets and stoking fear and bewilderment. The obvious question is, what’s the solution? The answer is, there is no solution. Europe faces choices, some bad and others worse. Unfortunately, it’s unclear which are which. The best that can be imagined is that Europe lurches from crisis to crisis and that its slumping economy weakens the already fragile global recovery. The worst is a massive flight from the euro and an economic free fall that resurrects the dark days of 2008 and 2009.
Can anyone doubt that the euro’s creation in 1999 was a huge blunder? It aimed to promote European prosperity and unity, but it’s doing just the opposite. The very belief in its early success reduced interest rates in Europe’s periphery (Greece, Portugal, Spain, Ireland, Italy). Low rates fed credit booms and housing bubbles that, once burst, caused recessions and swollen budget deficits.
As for unity — the political dividend of economic success — the euro now sows rancor. Germans, Italians, Greeks and the others quarrel over who’s to blame and who should bear the cost. The single currency actually hinders economic revival. One way countries cushion austerity — the spending cuts and tax increases designed to cut budget deficits — is currency depreciation. This makes their prices more competitive, boosting exports and tourism. But euro countries lack this choice, because they’re yoked to the euro. The human costs are immense. Unemployment is 14.2 percent in Ireland, 21.7 percent in Greece and 24.3 percent in Spain. How much suffering can societies tolerate without profound upheaval?
Read the rest of the original article at The Washington Post.
The Washington Post
Europe is at the abyss — again. Its turmoil is rattling global stock markets and stoking fear and bewilderment. The obvious question is, what’s the solution? The answer is, there is no solution. Europe faces choices, some bad and others worse. Unfortunately, it’s unclear which are which. The best that can be imagined is that Europe lurches from crisis to crisis and that its slumping economy weakens the already fragile global recovery. The worst is a massive flight from the euro and an economic free fall that resurrects the dark days of 2008 and 2009.
Can anyone doubt that the euro’s creation in 1999 was a huge blunder? It aimed to promote European prosperity and unity, but it’s doing just the opposite. The very belief in its early success reduced interest rates in Europe’s periphery (Greece, Portugal, Spain, Ireland, Italy). Low rates fed credit booms and housing bubbles that, once burst, caused recessions and swollen budget deficits.
As for unity — the political dividend of economic success — the euro now sows rancor. Germans, Italians, Greeks and the others quarrel over who’s to blame and who should bear the cost. The single currency actually hinders economic revival. One way countries cushion austerity — the spending cuts and tax increases designed to cut budget deficits — is currency depreciation. This makes their prices more competitive, boosting exports and tourism. But euro countries lack this choice, because they’re yoked to the euro. The human costs are immense. Unemployment is 14.2 percent in Ireland, 21.7 percent in Greece and 24.3 percent in Spain. How much suffering can societies tolerate without profound upheaval?
Read the rest of the original article at The Washington Post.
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