A chart from Paul Krugman’s latest book, End This Depression Now! which goes a long way towards explaining WTF happened to the Eurozone.
It wasn’t profligacy by the Eurozone periphery, it was the massive trade imbalances created by cheap credit in the periphery and the export engine of the Germans. Germany’s economy was driven by extracting cash from the periphery. Nothing more. Nearly all of the debt incurred in the periphery was private debt and not public debt. Then, when the bills came due (as in any asset bubble), the crisis manifested itself. Germany ate the periphery and then blamed the periphery for getting eaten.
So the next time you hear some wingnut commenter saying that it was the public unions or the social safety net or the European spending on healthcare, you’ll know they’re lying. Lying through their teeth.
8 thoughts on “How Germany Ate the Eurozone”
Can’t help but lament the evolution of the EU. Its purpose was to form a bulwark against continental threats like Napoleonic expansionism, fascism and hyper-nationalism. But the supranational economy it proffered merely opened the globalization flood gates. What Germany is doing is antithetical to the very purpose of European confederation. It’s shameful. And how the EU is threatening Argentina is shameful. Just more proof that the originating ideas behind the EU have long been lost. Tyranny by another name is tyrannical all the same.
Your root (cheap credit and ‘export engine’) hasn’t been established. I would be inclined to ask why other EU countries could not get the credit or put out a good product…
I turn to Krugman again who can articulate it far more cogently than I can.
With regard to the program of austerity, I’m reminded of what Indiana Jones and Sallah said when they discovered the Germans were using the wrong sized staff:
They’re digging in the wrong place!
Social welfare programs aren’t the problem, the inability to conduct a round of internal devaluation due to trade imbalances is.
Or it could be that PIIGS simply overspent more excessively.
That’s the narrative of the “austerians.” That’s the narrative for which there is no basis in fact (except maybe for Greece). Spain suffered a massive housing asset bubble, for instance.
Had the PIIGS had balanced budgets, their economic issues would be far less severe.
How so? Please explain the macroeconomic mechanism that would make that true.
Ireland, once a bustling economy featuring digital proficiency ended up with a lot of worthless German commercial paper that almost totally did them in.
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