In my continuing series on why Krugman’s anti-Euro musings undercut his anti-austerity positions…here’s Canadian columnist Andrew Coyne using the troubles of the Euro as the _basis_ of those anti-austerity positions. “…[B]oth Greece and Europe might well be better off with Greece outside the euro,” argues Coyne. “Whatever may be done to alleviate the country’s current debt problems — a mix of external lending, internal austerity, and haircuts to private creditors — it will do little to prevent the country running further into debt in future so long as its costs of production are so out of line with its competitors.”
The problem with Coyne’s position is suggested in this quote as well…”whatever may be done to alleviate the country’s debt problems”…these are _not_ “Greece’s debt problems”, they are Europe’s. It is precisely that attitude that is at the core of this problem – the point of currency union was to get Europeans to understand that Europe, which is in reality one unified economy, lives or dies together. Clearly many Europeans still do not get that – and Germans, especially, still do not get that. Saying “good luck with _your_ problems” to Greece and floating the irresponsible idea, as Coyne does here, that a good crisis would be invigorating for the Greeks…that’s accepting that all of Europe will have the crisis next. There is no firewall that can be erected at the Greek border. If the Greek domino goes, so does the Spanish one and the Italian one. So, too, ultimately, will go the German one.
Coyne suggests that, if any internal reform is going on within the EU, it’s because the “bond market” is making that happen. This flies in the face of the fact that it’s François Hollande and the French Socialists, critics of the current austerity-or-bust (more likely the latter) orientation of the EU, who are behind the most important reform being floated at present, the establishment of “Eurobonds” that would provide a basis for bond market investors to regard Europe as one unified economy. Hollande is not doing this because the bond market told him to – he’s doing this to get the bond market to value the overall European economy differently than it currently does. Properly understood, it’s a reform _of_ the bond market.
Paul Krugman’s voice should be the loudest and most effective in resisting the kind of lazy and economically illiterate arguments offered here by Andrew Coyne. By continuing to uncritically undervalue the Euro and the EU as an institution, however, Krugman gives the austerity agenda he is otherwise so assertive in opposing a big boost. People who normally detest Krugman’s views, indeed, will line up to high-five him here.