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Monday, June 18, 2012

Paul Krugman, "Greece as Victim": A Greek Tragedy

Greece is a victim?

As acknowledged by Paul Krugman in his latest New York Times op-ed entitled "Greece as Victim" (

"Greece does indeed have a lot of corruption and a lot of tax evasion, and the Greek government has had a habit of living beyond its means. Beyond that, Greek labor productivity is low by European standards — about 25 percent below the European Union average.

. . . .

Then Greece joined the euro, and a terrible thing happened: people started believing that it was a safe place to invest. Foreign money poured into Greece, some but not all of it financing government deficits; the economy boomed; inflation rose; and Greece became increasingly uncompetitive. To be sure, the Greeks squandered much if not most of the money that came flooding in, but then so did everyone else who got caught up in the euro bubble."

So, Greece joined the euro, foreign money poured into Greece, and the Greeks squandered most of it. Blame Greece? Absolutely not, given that everyone else also behaved irresponsibly.

But someone always needs to shoulder the blame. According to Krugman, "the origins of this disaster lie farther north, in Brussels, Frankfurt and Berlin, where officials created a deeply — perhaps fatally — flawed monetary system, then compounded the problems of that system by substituting moralizing for analysis." Paul continues, "Greece, although not without sin, is mainly in trouble thanks to the arrogance of European officials, mostly from richer countries, who convinced themselves that they could make a single currency work without a single government."

Poor, poor Greeks! Darned northern Europeans! How dare those northerners create a situation where foreign money poured into Greece, and those unsophisticated Greeks just frittered it away.

Krugman's solution? You guessed it . . . spend!:

"The only way the euro might — might — be saved is if the Germans and the European Central Bank realize that they’re the ones who need to change their behavior, spending more and, yes, accepting higher inflation."

Well, the Greeks didn't get it right the first time, but maybe if they are given even more euros, they will now conduct themselves more prudently. They deserve a second chance. After all, as observed by Krugman, the US federal government has routinely stood behind state governments when they encountered fiscal difficulties:

"Ask yourself, why does the dollar area — also known as the United States of America — more or less work, without the kind of severe regional crises now afflicting Europe? The answer is that we have a strong central government, and the activities of this government in effect provide automatic bailouts to states that get in trouble."

However, Paul doesn't tell us that whereas the IRS taxes citizens througout the US, the European Union has no taxation powers and is plagued with the inability in times of trouble to redistribute funds which it never accumulated.

Is the euro, as Krugman claims, "a deeply — perhaps fatally — flawed monetary system?" Probably, but I wouldn't want to see Greece fail, given that Spain, Italy and Portugal are waiting in the wings to unwind. But don't go blaming the "northerners" for the foreign money that poured into Greece, which could have been used more wisely. The Greeks are victims of their own making.

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