Well, this lady isn't fat, but you get the idea.
Read it at The New York Times | The Conscience of a Liberal
by Paul Krugman | Professor of Economics, Princeton University
(h/t Trixie in the comments)
(h/t Trixie in the comments)
PK is signaling that this is a consensus view. Who were the "some of us," I wonder?
What this says is that the punting is effectively over. Either the EZ has the will to go forward and do what it takes to deliver, or not. If not, that's the end of the euro, and the end is likely to unwind rather quickly as money moves. The Krugman consensus group apparently think that the necessary will is not going to be forthcoming.
I am not as sure about this outcome, since the problem can be resolved by going forward and there is a lot of popular impetus for EZ holding together as a currency zone. So far, I don't think that most people in the EZ have been considering this as a real possibility. They believe that some accommodation will be worked out and are trying to make whatever it turns out to be as comfortable for themselves as possible, recognizing that there is going to be pain all around.
But I would agree that it is unlikely, given present conditions, and I suspect the situation will become clearer from the response in the next week, or two at most. If there is no significant change in direction by then, the handwriting is on the wall. Right now, the impetus of the German powers-that-be seems to favor cutting Greece loose, and that would set the above scenario in motion, as Krugman predicts.
Another key question is whether the parties involved know how to deal with the situation intelligently if there is a breakup. Probably not, especially at a time when emotions are running high. Entrepreneurs like to say that every breakdown is an opportunity for a breakthrough, but most people, including politicians and their economic advisers don't think that way, unfortunately. Their motto is instead, cover your butt and save yourself. While I agree with Barry Eichengreen that this is not the Thirties and it won't result in overt conflict, it is not going to be smooth sailing either — only a disaster and not a catastrophe, if that is any consolation.
If this projected scenario unfolds, I am concerned that the effect on the US may be to give austerity a push "in order to avoid Europe's fate." Of course, austerity would have the opposite effect. Increasing austerity would result in a severe economic setback in the US, which could even provoke a debt-deflationary spiral that takes down the global economy, perhaps ending Western (neoliberal) dominance. Extreme possibility maybe, but not off the table.
Whatever, there would financial and economic turmoil resulting in greater uncertainty, and it would throw a wildcard into the US general election, which is going to be focused on the economy anyway. Failure of the euro, and Europe, would broaden and deepen the economic concern in the US at a time of political fragility.
Do Americans know enough to make an informed choice about such matters. No way.