The State of the European Crisis
By Arnold Kling
Richard Baldwin and Daniel Gros introduce a set of essays on the crisis in the eurozone.
The authors unanimously believe that the crisis is not over, and that the Eurozone rescue is not finished. More needs to be done.
I have read a few of the essays, and I find them interesting but not very satisfying. I think that there are some larger issues. Again, to me the Euro is just a medium of exchange. The questions that I have are:
1. Does the crisis say anything about the viability of the European welfare state? That is, are Greece and Spain just anomalies with exceptional political problems, or are they the canaries in the coal mine? Will the political situations in France, Germany, and the Nordic countries deteriorate as demographic trends weaken their fiscal positions?
2. Are the unelected Eurocrats part of the solution or part of the problem? Can they provide political cover for policy makers in individual countries to undertake unpopular but necessary structural reforms? Or will they oversee bailouts and policies based on Keynesian assumptions in a Hayekian moment?
3. When it comes to financial system robustness, is the U.S. the tallest pygmy? For all the talk of “deregulation,” the United States actually beefed up its regulation of safety and soundness after the S&L crisis. In addition, of all major countries, ours is the least dependent on a few big banks. Do European countries need major institutional changes to correct structural weaknesses in banking and finance?
4. Does the adoption of the Euro promote enough long-term efficiency to offset the short-term cyclical problems that it causes in some countries?