Today Paul Krugman gave an interview in SVT Swedish public television., Photo in link: SVT Aktuellt. Krugman said it was a big mistake to introduce the euro.
Eight years ago at a seminar organized by Arbetslivsinstitutet (the National Institute for Working Life / NIWL) and the Trade Union Confederation LO he said it would be big mistake to introduce the euro. True today, true in 2003, the year of the Swedish referendum on joining the euro or not – naught won.
In the interview in the news program Aktuellt at 9 PM tonight, Nobel Prize laureate and Princeton professor Paul Krugman said that lack of essential preconditions for a common European currency creates today’s deep economic and political crisis in Europe.
What are those essential preconditions? As I remembered Krugman’s argument from 2003, and have kept reminding my friends and colleagues, Europe has the following problematic charecteristics if it wants a common currency:
# to small budget in Bruxelles to be able to intervene in countries with problems
# no really common labour market (if there is a tornado in Florida, US building workers move from Oregon to work in Florida, People from northern Sweden do not move to south Italy if there is an earthquake there)
# no common culture, no common language
He said, as I recall it, that for these three reasons it is a bad idea to introduce the euro, it will simply not work well.
In the interview today Krugman had similar arguments. Asked about the common currency and interest rate in the 17 euro zone countries, and whether ‘one size fits all’, Krugman said:
# Development in the seventeen countries is very different
# The European economies are not integrated in the way that would be needed, in several ways:
– There is no fiscal union, no common taxes
– No banking union
– Not the degree of labour market mobility needed
So, in conclusion, it was premature to introduce the euro. Basically: The necessary preconditions for a succesful common currency (the euro) were not there and they still are not there.
According to Krugman, the introduction of the euro, combined with the inability of the American political system to make necessary changes (mainly due to the Republican party resistance to tax increases) are the two factors that create todays deep crisis in the world economy. And Krugman concludes, the difficult situation will be there for the next ten years.
Krugman was right in his analysis and prognosis in 2003, and right in his analysis after the fact today. Sad so many people did not listen in 2003.
Krugman makes it easy for himself, dropping wise “See, what did I tell you!” remarks around himself. Thats probably why is so popular in the press. In CNN he just recently said that the world debt will go away if we just had enough fiscal stimuli. Thats not true at all, he is merely dusting off old keynesian tricks and we know those dont work in the long run.
But at least he is a funny economist. His image for a fiscal stimuli strong enough was an alien threat on earth. http://edition.cnn.com/video/#/video/politics/2011/08/12/gps.krugman.govt.spending.cnn?iref=allsearch
Björn, thanks for your comment. First, in this case it is not Krugman saying ‘what did I say’, but me referring to his 2003 seminar. And I suppose he, and I, believe more in Keynesianism than in neoliberal ideas But of course not only spending, but tightening government budgets is needed.