“Slow-motion disaster”: Paul Krugman sounds the alarm about Europe’s economic mess

From Salon:  http://www.salon.com/2014/12/01/slow_motion_disaster_paul_krugman_sounds_the_alarm_about_europes_economic_mess/

The economist explains why the continent’s woes keep him up at night

Monday, Dec 1, 2014

A specter is haunting Europe — the specter of a lost decade.

So warns Nobel Prize-winning economist Paul Krugman in his New York Times column today, which examines the continent’s “slow-motion disaster.” As Krugman notes, the United States and Europe are diverging in their economic paths: while the U.S. seems to be slowly but surely recovering from the financial crisis, Europe is in the midst of another, with high unemployment and a looming risk of deflation. Why is the continent staring down the economic abyss? “The conventional wisdom among European policy makers is that we’re looking at the price of irresponsibility,” Krugman observes, with countries like Greece, Spain, France, and Italy blamed for alleged profligacy and uncompetitive economic policies. But the conventional wisdom is dead wrong, Krugman argues.

If you want to know how Europe reached its current state of affairs, don’t look to the continent’s traditional scapegoats. “[T]he bad behavior at the core of Europe’s slow-motion disaster isn’t coming from Greece, or Italy, or France,” Krugman contends. “It’s coming from Germany.”

Purveyors of the standard narrative about the European economy depict countries like Greece, Italy, and France as racked with high labor costs and reckless fiscal policies. But this narrative is bunk; just glance at some of the data:

Since the euro came into existence in 1999, France’s G.D.P. deflator (the average price of French-produced goods and services) has risen 1.7 percent per year, while its unit labor costs have risen 1.9 percent annually. Both numbers are right in line with the European Central Bank’s target of slightly under 2 percent inflation, and similar to what has happened in the United States. Germany, on the other hand, is way out of line, with price and labor-cost growth of 1 and 0.5 percent, respectively.

Moreover, Krugman writes, costs are coming under control in Spain and Italy. And as for the argument that fiscal irresponsibility is wrecking economies, Krugman points out that France’s borrowing costs are barely higher than Germany’s; there’s no fiscal crisis on the horizon.

Continue reading at:  http://www.salon.com/2014/12/01/slow_motion_disaster_paul_krugman_sounds_the_alarm_about_europes_economic_mess/

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