Member Since: 11/27/2010
Posts: 9,806
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Europe’s Impossible Dream
Greece Economic Problems
Quote:
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.
Indeed, within Europe’s elite it quickly became very hard to raise objections to the currency project. I remember the atmosphere of the early 1990s very well: anyone who questioned the desirability of the euro was effectively shut out of the discussion. Furthermore, if you were an American expressing doubts you were invariably accused of ulterior motives — of being hostile to Europe, or wanting to preserve the dollar’s “exorbitant privilege.”
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.
Furthermore, the story doesn’t end there. When the predicted and predictable strains on the euro began, Europe’s policy response was to impose draconian austerity on debtor nations — and to deny the simple logic and historical evidence indicating that such policies would inflict terrible economic damage while failing to achieve the promised debt reduction.
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. It didn’t work for Britain after World War I, despite immense sacrifices; why would anyone expect it to work for Greece?
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