Apocalypse Fairly Soon

http://www.nytimes.com/2012/05/18/op...y-soon.html?hp
Apocalypse Fairly Soon
By PAUL KRUGMAN
Published: May 17, 2012 10 Comments


Suddenly, it has become easy to see how the euro — that grand, flawed experiment in monetary union without political union — could come apart at the seams. We’re not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years. And the costs — both economic and, arguably even more important, political — could be huge.


This doesn’t have to happen; the euro (or at least most of it) could still be saved. But this will require that European leaders, especially in Germany and at the European Central Bank, start acting very differently from the way they’ve acted these past few years. They need to stop moralizing and deal with reality; they need to stop temporizing and, for once, get ahead of the curve.

I wish I could say that I was optimistic.

The story so far: When the euro came into existence, there was a great wave of optimism in Europe — and that, it turned out, was the worst thing that could have happened. Money poured into Spain and other nations, which were now seen as safe investments; this flood of capital fueled huge housing bubbles and huge trade deficits. Then, with the financial crisis of 2008, the flood dried up, causing severe slumps in the very nations that had boomed before.

At that point, Europe’s lack of political union became a severe liability. Florida and Spain both had housing bubbles, but when Florida’s bubble burst, retirees could still count on getting their Social Security and Medicare checks from Washington. Spain receives no comparable support. So the burst bubble turned into a fiscal crisis, too.

Europe’s answer has been austerity: savage spending cuts in an attempt to reassure bond markets. Yet as any sensible economist could have told you (and we did, we did), these cuts deepened the depression in Europe’s troubled economies, which both further undermined investor confidence and led to growing political instability.

And now comes the moment of truth

I agree with him. Europe is doomed. Buckle up. It could get bumpy.

Q&A: Greek debt crisis

BBC May 16

After months of refusing to countenance the possibility of Greece leaving the euro, eurozone politicians are slowly beginning to acknowledge there may be no option but to let the country go.

Greece's political parties have failed to form a working coalition following voters' rejection earlier this month of austerity measures insisted upon by the European Union and the International Monetary Fund, so the Greeks will return to the polls in June.

The vote is being seen as a referendum on the euro. Syriza, which came second in the recent election, is promising to freeze payments to creditors and renegotiate the terms of the bailout from the EU and IMF - terms that demand austerity measures to bring down Greece's debts.

Germany has said the loan terms are not negotiable.

But even if the pro-austerity parties win the election, Greece may still be forced to give up the euro.

Why is Greece in trouble?

Greece was living beyond its means even before it joined the euro. After it adopted the single currency, public spending soared.

Public sector wages, for example, rose 50% between 1999 and 2007 - far faster than in other eurozone countries.

And while money flowed out of the government's coffers, its income was hit by widespread tax evasion. So, after years of overspending, its budget deficit - the difference between spending and income - spiralled out of control.

When the global financial downturn hit, therefore, Greece was ill-prepared to cope.

Debt levels reached the point where the country was no longer able to repay its loans, and was forced to ask for help from its European partners and the International Monetary Fund (IMF) in the form of massive loans.

In the short term, however, the conditions attached to these loans have compounded Greece's woes.

What has been done to help Greece?

http://www.bbc.co.uk/news/business-13798000

It sounds like the government of Greece was "stimulating" their economy for a while. The fallacy of the big government crowd is that at the end of the day, real money has to come from somewhere. Here in the US, the left wants it from "the rich" and "greedy corporations" because they have "real money".

"Greece was living beyond its means even before it joined the euro. After it adopted the single currency, public spending soared.

Public sector wages, for example, rose 50% between 1999 and 2007 - far faster than in other eurozone countries.

And while money flowed out of the government's coffers, its income was hit by widespread tax evasion. So, after years of overspending, its budget deficit - the difference between spending and income - spiralled out of control."

The problem with socialism is that you always run out of someone else's money, and then if you can't borrow it....