Paul Krugman is the economic equivalent of a global warming advocate. He doesn‚Äôt let reality get in the way of a good theory.
The simple explanation is that the Baltic countries have pursued the opposite policy of the southern Europeans. In 2009, the Baltic governments each carried out strict austerity, with a¬†fiscal adjustment¬†of about 9.5 percent of GDP, mainly though expenditure cuts and substantial structural reforms. The southern Europeans, by contrast, delivered substantial fiscal stimulus in 2009. Previously fiscally conservative Cyprus and Slovenia¬†ran up budget deficits¬†of 6 percent of GDP¬†in 2009, but neither benefited from greater growth. Instead, they have been trapped with large budget deficits and are now being overwhelmed by their public debt, admittedly also because of banking crises.
One would think, given the divergent outcomes, that a serious economist would advocate for countries to follow the successful example of northern Europe rather than the failed strategies of the south. Nobel laureate and¬†New York Times¬†columnist Paul Krugman doesn’t seem to see it that way. Throughout the crisis, Krugman has attempted to explain away or even mock the Baltic countries’ success even as they have continued to inconveniently disprove his arguments.
Good on the Baltic countries for sorting out their own shit and taking a bit of pain instead of going on the bludge.