What happened in Europe? Economic crises, political gridlock, and even moral reckonings (in the case of Berlusconi or Greek monks) with a possible rescue by the technocrats. As we continue to try to make sense of it–and the fall of the Euro appears to be more likely, despite the EU Ambassador to the United States’s scheduled lecture topic tomorrow. Krugman debunks the myths that this proves the failure of the welfare state or the need for immediate austerity:
What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else’s currency, with all the loss of flexibility that implies. In particular, since euro-area countries can’t print money even in an emergency, they’re subject to funding disruptions in a way that nations that kept their own currencies aren’t — and the result is what you see right now. America, which borrows in dollars, doesn’t have that problem.
The other thing you need to know is that in the face of the current crisis, austerity has been a failure everywhere it has been tried: no country with significant debts has managed to slash its way back into the good graces of the financial markets. For example, Ireland is the good boy of Europe, having responded to its debt problems with savage austerity that has driven its unemployment rate to 14 percent. Yet the interest rate on Irish bonds is still above 8 percent — worse than Italy.
And if you happen to be a struggling Eurozone country–this is how to leave the monetary union (“its fairly straightforward”) according to the economist Stergios Skaperdas.