Friday, May 7, 2010

Greece is the word

Paul Krugman's NYT column today does a great job explaining the sources of the Greek economic crises and pointing out the limited options available to deal with it.  The essence of the problem is that even though Greece's economic issues may not be as severe as those facing some some states in the US, states such as California can rely on federal programs such as Social Security, grants and stimulus packages whereas there is no European central government with taxing and spending authority to help Greece out. Krugman believes that Greece will ultimately have to go off the Euro and issue a new devalued currency that will reduce real wages and make Greek exports economically competitive.  A debt default a la Argentina in 2001 is also in the cards.  Other European governments (Portugal, Spain, Ireland in particular) could be in the same boat.  Krugman seems to think this will not be as disruptive as the fall of Lehman Brothers; I hope he is right.

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