Arnold Kling  

Today on the Eurozone Crisis

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1. Richard Milne in the Financial Times.


the biggest worry is that European leaders appear to be repeating one of the original sins that led to the eurozone crisis in the first place: forcing banks and insurers to load up on government debt.

Carmen Reinhart's term "financial repression" is employed. Pointer from Tyler Cowen.

2. Martin Feldstein writes,


The Merkel-Sarkozy team should recognize that they have been on the wrong track. Europe needs country-by-country fiscal reforms and not a renewed push for a fiscal union and political integration.

3. Charles A.E. Goodhart and Dirk Schoenmaker write,


We need to fix the political dimension before we can finally solve the financial side of the sovereign and banking crisis. It is not sufficient to elevate the current Commissioner for Economic and Monetary Affairs to Finance Minister status. A full democratic setting - including an elected president of the European Commission - is necessary to complete political union.

Latter two pointers from Mark Thoma, who does not comment on the diametric opposition between the two op-eds.

For what it's worth, I am inclined to agree with Feldstein. For one thing, he is one economist who predicted that the euro would fail. In fact, if the U.S. financial crisis was a black eye for the economics profession because few economists predicted it, then the euro crisis should be...well, whatever is the opposite of a black eye...because many economists predicted it.

In fact, the black eye and the non-black eye may be related. You can tell a story that the creation of the euro resulted in a bloated European financial sector, which then funded the U.S. housing bubble. Remember this post?


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CATEGORIES: Eurozone crisis



COMMENTS (5 to date)
paul j symanski writes:

If Greece repudiates its debt and leaves the euro zone, what is the likely course of events within Greece?

Drea writes:

"A feather in their cap"

rpl writes:
[The opposite of a black eye is] "A feather in their cap"
Who knew that Colonel Cathcart was an EconLog reader?

(Come to think of it, where macroeconomics is concerned, maybe Cathcart is an appropriate mascot.)

Jesus writes:

And maybe you think the USA is better than Europe zone?.. donĀ“t see the popular movement against the system in USA?... and the money they spend to rescate Banks as Citigroup or BoA??.. and what you think about the global goverment?... not is a Europe think....

mbka writes:

In the aggregate it evens out and the average of economists' predictions is entirely uncorrelated to what is going to happen.

That alone wouldn't be worrisome but the markets have also failed to predict either crisis in any meaningful way. Of course they fell when they fell but they weren't of any use in making long term assessments either.

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