On this Krugman is right

In “European Fiscal Zombies” he argues that the German view of “fiscal profligacy” behind the crisis is dead wrong. The NYT had this piece:

Germany has adamantly opposed what it sees as rewarding the bad behavior of southern rim countries like Italy, Greece, Spain and Portugal, which amassed high public debts and where tax evasion is rampant. But it has also been vehemently opposed to changes that many economists and the Obama administration say are necessary to ensure the stability of the euro, such as allowing the European Central Bank to become a lender of last resort like the Federal Reserve in the United States.

First a picture of the debt-GDP ratio weighted by the GIPSI (Greece, Ireland, Portugal, Spain) GDP shows that the public debt ratio was coming down until the crisis erupted.

The real problem was systemic, associated with the single currency and the imbalances it brought about. The next chart shows the current account GDP balance for the GIPSI group of countries decreased significantly since the single currency was introduced.

But it´s not in Germany´s interest to recognize that fact since it would make it part of the problem!

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