Greece is experiencing a slump worse than the Great Depression, and nothing happening now offers hope of recovery. Spain has been hailed as a success story, because its economy is finally growing — but it still has 22 percent unemployment. And there is an arc of stagnation across the continent’s top: Finland is experiencing a depression comparable to that in southern Europe, and Denmark and the Netherlands are also doing very badly.
How did things go so wrong? The answer is that this is what happens when self-indulgent politicians ignore arithmetic and the lessons of history. And no, I’m not talking about leftists in Greece or elsewhere; I’m talking about ultra-respectable men in Berlin, Paris, and Brussels, who have spent a quarter-century trying to run Europe on the basis of fantasy economics.
The only big mistake of the euroskeptics was underestimating just how much damage the single currency would do.
The point is that it wasn’t at all hard to see, right from the beginning, that currency union without political union was a very dubious project. So why did Europe go ahead with it?
Mainly, I’d say, because the idea of the euro sounded so good. That is, it sounded forward-looking, European-minded, exactly the kind of thing that appeals to the kind of people who give speeches at Davos. Such people didn’t want nerdy economists telling them that their glamorous vision was a bad idea.
And the euro came. For a decade after its introduction a huge financial bubble masked its underlying problems. But now, as I said, all of the skeptics’ fears have been vindicated.
It’s astonishing even now how blithely top European officials dismissed warnings that slashing government spending and raising taxes would cause deep recessions, how they insisted that all would be well because fiscal discipline would inspire confidence. (It didn’t.) The truth is that trying to deal with large debts through austerity alone — in particular, while simultaneously pursuing a hard-money policy — has never worked.
Vir: Paul Krugman