Euroratbags given a kicking by economists

Nobel Laureate Economist and prominent left wing commentator Paul Krugman has a great article telling the Euroratbags they were actually wrong about whether the Euro would work.

Europe is pretty much rooted from too much government, and the deluded Eurocrats thought that they were going to form a currency union without actually having any clue about economics, as Krugman points out.

There’s a bit of a lull in the news from Europe, but the underlying situation is as terrible as ever. Greece is experiencing a slump worse than the Great Depression, and nothing happening now offers hope of recovery. Spain has been hailed as a success story, because its economy is finally growing — but it still has 22 percent unemployment. And there is an arc of stagnation across the continent’s top: Finland is experiencing a depression comparable to that in southern Europe, and Denmark and the Netherlands are also doing very badly.

How did things go so wrong? The answer is that this is what happens when self-indulgent politicians ignore arithmetic and the lessons of history. And no, I’m not talking about leftists in Greece or elsewhere; I’m talking about ultra-respectable men in Berlin, Paris, and Brussels, who have spent a quarter-century trying to run Europe on the basis of fantasy economics.

All manner of sensible economists told the dopey Europeans that the Euro would end up rooted.

The Eurocrats didn’t listen and got stuck into them for being unbelievers. Krugman has a good long memory and hammers the Euroratbags for their triumphant stupidity in 2010.

To someone who didn’t know much economics, or chose to ignore awkward questions, establishing a unified European currency sounded like a great idea. It would make doing business across national borders easier, while serving as a powerful symbol of unity. Who could have foreseen the huge problems the euro would eventually cause?

Actually, lots of people. In January 2010 two European economists published an article titled “It Can’t Happen, It’s a Bad Idea, It Won’t Last,” mocking American economists who had warned that the euro would cause big problems. As it turned out, the article was an accidental classic: at the very moment it was being written, all those dire warnings were in the process of being vindicated. And the article’s intended hall of shame — the long list of economists it cites for wrongheaded pessimism — has instead become a sort of honor roll, a who’s who of those who got it more or less right.

The abstract of the article by Lars Jonung and Eoin Drea says:

On the whole, the euro has, thus far, gone much better than many U.S. economists had predicted. We survey how U.S. economists viewed European monetary unification from the publication of the Delors Report in 1989 to the introduction of euro notes and coins in January 2002. U.S. academic economists concentrated on whether a single currency was a good or bad thing, usually using the theory of optimum currency areas, and most were skeptical towards the single currency. In contrast, Federal Reserve economists had a less analytical and a more pragmatic approach. Both groups adjusted their views as European monetary unification progressed. It is surprising that academic economists, living in and benefiting from the U.S. monetary union, were so skeptical of monetary unification in Europe. We explain the skepticism as resulting from the strong influence of the original theory of optimum currency areas; failure to see monetary unification as an evolutionary process; failure to identify pegged exchange rates, rather than floating rates, as the practical alternative to a single European currency; and the belief that the single currency for Europe was primarily a political project that ignored economic fundamentals.

Well done Eurocrats, you have inflicted misery on your continent despite being told not to by real economists.

 

– NYTimes, Econ Journal Watch


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