Paul Krugman, "Europe’s Many Economic Disasters": Sorry, But Without Children, Europe Is Terminal

By abandoning "austerity" and the euro, can Greece eke out a recovery? Paul Krugman seems to think so. In his latest New York Times op-ed entitled "Europe’s Many Economic Disasters," Krugman writes:

"Why are there so many economic disasters in Europe? Actually, what’s striking at this point is how much the origin stories of European crises differ. Yes, the Greek government borrowed too much. But the Spanish government didn’t — Spain’s story is all about private lending and a housing bubble. And Finland’s story doesn’t involve debt at all. It is, instead, about weak demand for forest products, still a major national export, and the stumbles of Finnish manufacturing, in particular of its erstwhile national champion Nokia.

What all of these economies have in common, however, is that by joining the eurozone they put themselves into an economic straitjacket. Finland had a very severe economic crisis at the end of the 1980s — much worse, at the beginning, than what it’s going through now. But it was able to engineer a fairly quick recovery in large part by sharply devaluing its currency, making its exports more competitive. This time, unfortunately, it had no currency to devalue. And the same goes for Europe’s other trouble spots."

Got it! Greece should tell its lenders to go to hell, abandon the euro, and devalue newly printed drachmas. Hordes of tourists will arrive on its sunny shores, and its shipping industry will boom, all leading to economic recovery . . . or not.

In fact, the way I see it, both Greece and Europe are dying. As observed in a May 30, 2012 Forbes article entitled "What's Really Behind Europe's Decline? It's The Birth Rates, Stupid" by Joel Kotkin:

"Essentially, Spain and other Mediterranean countries bought into northern Europe’s liberal values, and low birthrates, but did so without the economic wherewithal to pay for it. You can afford a Nordic welfare state, albeit increasingly precariously, if your companies and labor force are highly skilled or productive. But Spain, Italy, Greece and Portugal lack that kind of productive industry; much of the growth stemmed from real estate and tourism. Infrastructure development was underwritten by the EU, and the country has become increasingly dependent on foreign investors.

Unlike Sweden or Germany, Spain cannot count now on immigrants to stem their demographic decline and generate new economic energy. Although 450,000 people, largely from Muslim countries, still arrive annually, over 580,000 Spaniards are heading elsewhere — many of them to northern Europe and some to traditional places of immigration such as Latin America. Germany, which needs 200,000 immigrants a year to keep its factories humming, has emerged as a preferred destination."

Unfortunately, this article is just as correct today as it was in 2012.

More specifically regarding Greece, as observed by Nikos Konstandaras in a guest December 2013 New York Times op-ed entitled "Greece's Dismal Demographics":

"Deaths are outnumbering births, people are leaving the country, and the population is aging so fast that in a few decades Greece may be unable to produce enough wealth to take care of its people and may cease to be a viable nation state."

Or stated otherwise, unless this demographic trend in Greece, also prevalent throughout Europe, is reversed, neither austerity nor devaluation are going to rescue anyone.

Paul Krugman, "Greece Over the Brink": Is America Next?

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"The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents - #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back -- $30,000 for every man, woman and child. That's irresponsible. It's unpatriotic."

- Barack Obama, July 3, 2008

Well, US national debt has now reached an unsustainable $18.3 trillion, amounting to $57,000 for every American man, woman and child. Care to comment, Mr. President? And although today's headlines are all about the economic woes of Greece and Puerto Rico, the United States of America is not far behind, although no one dares say anything. You will recall the frightened silence of those observing the the emperor's parade in "The Emperor's New Clothes" . . .

In his latest New York Times op-ed entitled "Greece Over the Brink," Paul Krugman declares that "the creation of the euro was a terrible mistake," which trapped Greece in an "economic straitjacket." Observing that "[c]ases of successful austerity, in which countries rein in deficits without bringing on a depression, typically involve large currency devaluations that make their exports more competitive" (something Greece cannot do to the euro), Krugman urges Greek voters to reject demands from creditors for harsher austerity:

"This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.

So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end."

Regrettably, Krugman does not bother mentioning Puerto Rico in his op-ed. As reported by Michael Fletcher in a Washington Post article entitled "Puerto Rico says it cannot pay its debt, setting off potential crisis in the U.S.":

"The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the United States.

Puerto Rico’s move could roil financial markets already dealing with the turmoil of the renewed debt crisis in Greece. It also raises questions about the once-staid municipal bond market, which states and cities count on to pay upfront costs for public improvements such as roads, parks and hospitals.

For many years, those bonds were considered safe investments — but those assumptions have been shifting in recent years as a small but steady string of U.S. municipalities, including Detroit, as well as Stockton and Vallejo in California, have tumbled into bankruptcy."

Puerto Rico cannot file for bankruptcy, and no one, least of all Krugman, knows if this crisis, involving both Greece and Puerto Rico, could snowball. Pretty it won't be.

Paul Krugman, "That 1914 Feeling": Greece? What About Puerto Rico? What About the US?

Examining the Greek debt crisis in his latest New York Times op-ed entitled "That 1914 Feeling," Paul Krugman notes the concern of Jacob Lew, America's Treasury secretary, who "recently warned Europeans that they had better settle the Greek situation soon, lest there be a destructive 'accident.'" Krugman goes on to say:

"Some major players seem strangely fatalistic, willing and even anxious to get on with the catastrophe – a sort of modern version of the 'spirit of 1914,' in which many people were enthusiastic about the prospect of war. These players have convinced themselves that the rest of Europe can shrug off a Greek exit from the euro, and that such an exit might even have a salutary effect by showing the price of bad behavior.

But they are making a terrible mistake. Even in the short run, the financial safeguards that would supposedly contain the effects of a Greek exit have never been tested, and could well fail. Beyond that, Greece is, like it or not, part of the European Union, and its troubles would surely spill over to the rest of the union even if the financial bulwarks hold."

The national debt of Greece? Almost $378 billion, and debt per citizen of over $34,000. Yes, it's worrisome.

But closer to the US, what about Puerto Rico, which also stands on the brink of default with debt totaling some $73 billion? In April, Standard & Poor's reduced Puerto Rico's general obligation debt from a B to a CCC plus rating, i.e. junk.

Meanwhile, America's debt has risen dramatically under the careful guidance of the Obama administration to an unsustainable $18.3 trillion, or debt per citizen of some $57,000.

A "1914" feeling? How about 1929?

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" (http://www.nytimes.com/2012/06/18/opinion/krugman-greece-as-victim.html):

"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.

Paul Krugman, "Apocalypse Fairly Soon": Is the Euro a Failed Experiment?

In his latest New York Times op-ed entitled "Apocalypse Fairly Soon" (http://www.nytimes.com/2012/05/18/opinion/krugman-apocalypse-fairly-soon.html), Paul Krugman warns of imminent failure of the euro. Observing that Greek voters are dismayed by 22% unemployment and that Greece can’t adopt the austerity policies demanded by Germany and the European Central Bank, Krugman writes:

"Right now, Greece is experiencing what’s being called a 'bank jog' — a somewhat slow-motion bank run, as more and more depositors pull out their cash in anticipation of a possible Greek exit from the euro. Europe’s central bank is, in effect, financing this bank run by lending Greece the necessary euros; if and (probably) when the central bank decides it can lend no more, Greece will be forced to abandon the euro and issue its own currency again."

Greece will be forced to issue its own currency again? I suppose this is a euphemism for printing drachmas, which doesn't solve the underlying problems of debt and unemployment. Sure, there might be some very short-term stimulus, but Greece will be unable to borrow at reasonable rates, and this is no more than a formula for hyperinflation, continuing high rates of unemployment, and chaos.

Warning that if Greece abandons the euro, additional problems could erupt in Spain and Italy, Krugman demands that the European Central Bank cease obsessing over price stability and even "encourage several years of 3 percent or 4 percent inflation." Krugman concludes:

"Failure of the euro would amount to a huge defeat for the broader European project, the attempt to bring peace, prosperity and democracy to a continent with a terrible history. It would also have much the same effect that the failure of austerity is having in Greece, discrediting the political mainstream and empowering extremists."

Politically incorrect queries: Is there a continent, other than Antarctica, without a "terrible history"? Was it ever realistic to meld the economies of Germany with those of Greece, Spain and Portugal? Is Europe as a whole in unremitting decline, owing to a host of factors, including falling birth rates and the absorption of uneducated immigrant populations, which are contributing significantly to unemployment?

Spend to pull Europe out of its economic crisis? I don't think it will help.

Obama Issued Arms Deal Ultimatum to Turkey? Not Exactly . . .

According to a Financial Times article entitled "US issues arms deal ultimatum to Turkey", Obama personally issued a warning to Turkish Prime Minister Erdoğan that Ankara's position on Israel and Iran could could reduce the likelihood of obtaining U.S. weapons:

"President Barack Obama has personally warned Turkey’s prime minister that unless Ankara shifts its position on Israel and Iran it stands little chance of obtaining the US weapons it wants to buy.

Mr Obama’s warning to Recep Tayyip Erdogan is particularly significant as Ankara wants to buy American drone aircraft – such as the missile-bearing Reaper – to attack the Kurdish separatist PKK after the US military pulls out of Iraq at the end of 2011

. . . .

One senior administration official said: 'The president has said to Erdogan that some of the actions that Turkey has taken have caused questions to be raised on the Hill [Congress] . . . about whether we can have confidence in Turkey as an ally. That means that some of the requests Turkey has made of us, for example in providing some of the weaponry that it would like to fight the PKK, will be harder for us to move through Congress.'”

http://www.ft.com/cms/s/0/35d01e4e-a895-11df-86dd-00144feabdc0.html

Note the contradiction in the Financial Times article: The article begins by telling us that Obama "personally" warned Erdoğan of an impending arms embargo. Afterwards, we are told what was truly said, i.e. that Obama warned that the U.S. Congress might act to block arms sales to Turkey. There's a big difference.

Note how the Obama administration earlier this month refused to terminate $100 million in military aid to Lebanon after the Lebanese Army attacked Israeli forces without provocation, and it fell upon the U.S. Congress (Representatives Lowey and Berman) to suspend this assistance (http://jgcaesarea.blogspot.com/2010/08/assassination-of-israeli-lt-colonel-by.html).

None of this should come as a surprise. Obama has repeatedly demonstrated his inability to react swiftly and decisively to events, be it oil spills or street demonstrations in Tehran, and the warning given to Erdoğan amounted to little more than an attempt to pin the blame on Congress for any future strain upon American relations with Turkey.

Beyond Turkey's relationships with Israel and Iran, however, U.S. (and Israeli) arms sales to Turkey should also be conditioned upon Turkey's interaction with its Kurdish minority. I am horrified how the world reacted with a yawn to recent news reports that the Turkish military is using chemical weapons against the Kurds (see: http://kurdistancommentary.wordpress.com/2010/08/15/turkey-a-long-history-of-chemical-weapons-use-against-the-kurds/).

If only Obama had the courage to even mention in passing the plight of some 35 million Kurds, who were also attacked in the past with chemical weapons by Saddam, and who continue to be brutally oppressed by Turkey, Syria and Iran.

[Given the deterioration in relations between Turkey and Israel, Netanyahu's current visit to Athens is no accident and marks the first official visit to Greece of an Israeli prime minister.]