Krugman sees the euro as being in dire straits at the moment

Paul Krugman thinks the days of the euro may be numbered. In small numbers. He writes in Starkness Falls 09/10/2011:

Did the euro just enter its death throes?

OK, I know that sounds over the top, and I hope it is. But recent developments are really, really bad.

The German government is slowly, far too slowly, is beginning to take practical account of the fact that Greece is not able to pay off the full principal of their sovereign debt. (Schuldenmisere: Schäuble bereitet sich auf Griechenland-Pleite vor Spiegel Online 10.09.2011) Faced with a seriously shrinking economy thanks to the brutal austerity measure imposed on them by the EU, the European Central Bank and the International Monetary Fund, the Greek government is now signalling that it will not be able to satisfy the latest round of growth-killing measures demanded of it.

The exit of Greece from the euro wouldn't necessarily mean the end of the currency. But it would be a huge step in that direction. The current state of affairs with the euro has been a tremendous failure of European leadership. In The Spanish Prisoner 09/11/2011, Krugman shows that Spain's sovereign debt burden is less than Britain's. Excessive debt as such is not the problem for any of the EU "periphery" countries currently under attack by the bond markets, except for Greece. There he writes:

What's needed, clearly, is for Europe — and ultimately that probably means the ECB — to provide for Spain and Italy the kind of backstop countries with their own currencies can provide for themselves. Without that, the whole euro system is at risk of unraveling, not over the course of years, but over the course of a few weeks.

It will be a tragedy if the euro fails. If the EU is wrecked or permanently weakened in the process, as it is likely to be, that will be an even greater tragedy.

Krugman also deals with this in his column An Impeccable Disaster New York Times 09/11/2011:

Financial turmoil in Europe is no longer a problem of small, peripheral economies like Greece. What’s under way right now is a full-scale market run on the much larger economies of Spain and Italy. At this point countries in crisis account for about a third of the euro area’s G.D.P., so the common European currency itself is under existential threat.

And all indications are that European leaders are unwilling even to acknowledge the nature of that threat, let alone deal with it effectively.

Herbert Hoover economics is wrecking the The European as well as the American economy. Even Britain, which still has the pound its own currency and is therefore not immediately impacted by the euro crisis, is frittering away that advantage by austerity economics.

Tags: austerity economics, eu, euro, european union