This is interesting. As readers of my blog will be aware, I have many differences with Paul Krugman as to economic theory and practice. In particular, I am in opposition to his view that rescuing the badly behaved is wise economic policy.
However, Mr. Krugman's recent comments on the imminent necessity of Greece's leaving the Euro as a shared common currency are of importance.I'll focus on these two points in Mr. Krugman's brief post:
1. Greek euro exit, very possibly next month.
2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.
Many economists are concerned about the possible implications of a Greek withdrawal from the Euro, now considered probable, based on the dramatic "anti-austerity" results of the recent Greek election.I for one am paying attention to Mr. Krugman this time.
Watch Spain and Italy... now!
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When is everybody going to wake up all efforts to keep countries like greece in the euro will fail in the end.
ReplyDeleteIt's no secret that the market is giving about a 75% probability to a Greek Exit. However, there is the "Geuro" concept, in which Greece could return to its own currency, but still conduct business in Euros, just as Zimbabwe now uses the US dollar, following the collapse of its own currency. The value of Greek goods and services would collapse under either regime, but the Geuro option may prove most realistic, assuming we don't also see exits by Spain and Italy, who are very large players compared to Greece. I have been writing for some time that Germany's motivation to keep the Euro is to cheapen its exports, which have continued growing due to Asian demand. Thus the Germans are willing to take a considerable amount of pain to avoid going the way of the Swiss Franc (that is, up and up, until intentional devaluation by the central bank is adopted - actually, China has done the same thing!).
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