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.
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.