Martin Wolf Channels his Inner Krugman

We all know that Paul Krugman can be acerbic… Rude even.  But the staid Martin Wolf?  Apparently he’s found his Inner Krugman.

Sign Spotted on the Door of the Eurozone Summit

Reflecting on the catastrophic failures of the Eurozone Summit last week, Martin Wolf draws a few, quite dire conclusions.  From The Financial Times:

[T]he UK’s behaviour took attention away from the failure of the eurozone’s leaders to devise a credible remedy for the ills of the currency union. They propose, instead, to tighten the screws on fiscal deviants. It may feel good. But it will not work.

Yet far more important than this piece of British political theatre is what might now happen inside the eurozone. On this I am pessimistic. Germany and France have agreed that there is to be no fiscal, financial or political union. The failure to transcend the defects of the original construction [of the Eurozone] is predictable, but dire.

The core decision was to strengthen fiscal discipline, so building what Angela Merkel, Germany’s chancellor, and Nicolas Sarkozy, the French president, last week called a “stability and growth union” – or, as I think of it, an “instability and stagnation union”.

This leaves much the most plausible outcome of the orgy of fiscal austerity: long-term structural recessions in vulnerable countries. To put it bluntly, the single currency will come to stand for wage falls, debt deflation and prolonged economic slumps. Can this stand, however big the costs of a break-up?

Indeed, the beatings will continue until morale improves.

Why should we in the US care about what happens on far-off European (economic) battlefields?  Because our economy is global.  Policy failures in Europe will ripple through the economy like a pebble dropped into a sewer.

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1 thought on “Martin Wolf Channels his Inner Krugman

  1. “Why should we in the US care about what happens on far-off European (economic) battlefields?” Because the same austerity package and confidence fairly nonsense is being tried here and, surprise, it isn’t working.

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