It's so nice to know, that I can ALWAYS count on you, for advice and enlightenment on issues ...ty so very much!
April 24, 2012, 12:21 pm
Ken Rogoff has a piece in the FT comparing Europe’s woes to those of a family with a shared checking account, some of whose members start abusing the privilege.
It’s a cute story — but it’s almost completely wrong. “Almost” because of yes, Greece. But Ken is basically buying into the German-preferred frame that it’s all about fiscal irresponsibility, which is completely wrong for everyone else — above all for Spain, the heart of the crisis.
For the umpteenth time, the key crisis countries did not have large deficits before the crisis struck. Taken as a group, the debt/GDP ratios of the GIPSIs were falling, not rising:
What brought on the crisis were huge private capital inflows. Don’t think runaway politicians; think German Landesbanken lending money to Spanish cajas, fueling a real estate bubble.
So what was the big problem with the euro? Not so much that it promoted these flows; it probably did, but the GIPSIs aren’t the first economies bond markets have temporarily loved not wisely but too well. No, the key problem is lack of a way to adjust when the music stopped.
It’s really frustrating that a completely, demonstrably false narrative about the crisis continues to dominate the discourse; and I’d hoped for better from Ken.
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