Today on the Eurozone Crisis
By Arnold Kling
1. Richard Milne in the Financial Times.
the biggest worry is that European leaders appear to be repeating one of the original sins that led to the eurozone crisis in the first place: forcing banks and insurers to load up on government debt.
Carmen Reinhart’s term “financial repression” is employed. Pointer from Tyler Cowen.
The Merkel-Sarkozy team should recognize that they have been on the wrong track. Europe needs country-by-country fiscal reforms and not a renewed push for a fiscal union and political integration.
We need to fix the political dimension before we can finally solve the financial side of the sovereign and banking crisis. It is not sufficient to elevate the current Commissioner for Economic and Monetary Affairs to Finance Minister status. A full democratic setting – including an elected president of the European Commission – is necessary to complete political union.
Latter two pointers from Mark Thoma, who does not comment on the diametric opposition between the two op-eds.
For what it’s worth, I am inclined to agree with Feldstein. For one thing, he is one economist who predicted that the euro would fail. In fact, if the U.S. financial crisis was a black eye for the economics profession because few economists predicted it, then the euro crisis should be…well, whatever is the opposite of a black eye…because many economists predicted it.
In fact, the black eye and the non-black eye may be related. You can tell a story that the creation of the euro resulted in a bloated European financial sector, which then funded the U.S. housing bubble. Remember this post?