Here are key bits from a NY Times op-ed by Paul Krugman:
If it weren’t so tragic, the current European crisis would be funny, in a gallows-humor sort of way. For as one rescue plan after another falls flat, Europe’s Very Serious People — who are, if such a thing is possible, even more pompous and self-regarding than their American counterparts — just keep looking more and more ridiculous.This is the kind of blindness you get from ideology. An ideologue doesn't look outside to see if it is sunny. He consults his horoscope because he "knows" that the horoscope captures everything essential about his future. You can't convince the fool that the horoscope was written days or weeks ago, that an astrologer has no knowledge of the future, and that the easiest way to check the weather is to look out the window. Europe is going down and it will take the whole world just like the US took the world down when it refused to rescue the Lehman investment house in September 2008. What an incredibly stupid world.
Think about countries like Britain, Japan and the United States, which have large debts and deficits yet remain able to borrow at low interest rates. What’s their secret? The answer, in large part, is that they retain their own currencies, and investors know that in a pinch they could finance their deficits by printing more of those currencies. If the European Central Bank were to similarly stand behind European debts, the crisis would ease dramatically.
Wouldn’t that cause inflation? Probably not: whatever the likes of Ron Paul may believe, money creation isn’t inflationary in a depressed economy. Furthermore, Europe actually needs modestly higher overall inflation: too low an overall inflation rate would condemn southern Europe to years of grinding deflation, virtually guaranteeing both continued high unemployment and a string of defaults.
But such action, we keep being told, is off the table. The statutes under which the central bank was established supposedly prohibit this kind of thing, although one suspects that clever lawyers could find a way to make it happen. The broader problem, however, is that the whole euro system was designed to fight the last economic war. It’s a Maginot Line built to prevent a replay of the 1970s, which is worse than useless when the real danger is a replay of the 1930s.
And this turn of events is, as I said, tragic.
The story of postwar Europe is deeply inspiring. Out of the ruins of war, Europeans built a system of peace and democracy, constructing along the way societies that, while imperfect — what society isn’t? — are arguably the most decent in human history.
Yet that achievement is under threat because the European elite, in its arrogance, locked the Continent into a monetary system that recreated the rigidities of the gold standard, and — like the gold standard in the 1930s — has turned into a deadly trap.
Now maybe European leaders will come up with a truly credible rescue plan. I hope so, but I don’t expect it.
The bitter truth is that it’s looking more and more as if the euro system is doomed. And the even more bitter truth is that given the way that system has been performing, Europe might be better off if it collapses sooner rather than later.
I foolishly thought that humanity was slowly getting "smarter" as we got wealthier and better educated. I failed to realize that if you can't fix the idiocy of ideology, then the craziness of people who "know" things because their ideology tells them it is so will destroy the world. I've always puzzled how powerful civilization in the past could commit suicide. I now realize it comes about by the elite of those societies getting deeply committed to their ideology and refuse to peek out the window to see whether the sun is shining or not. Incredible!
Sadly nobody will win this prize:
“Lord Wolfson, a prominent eurosceptic . . . is offering £250,000 to the person who comes up with the best plan for winding up the euro in an orderly way. The Wolfson Economics Prize . . . will be the second-largest cash prize for an academic economics after the Nobel Prize.” – Financial Times, October 19Why? Because the ideologues in Europe refuse to accept that there is a problem with the euro, with deficits, and with the European bank. Sure they will admit to "problems" but not enough to actually address the oncoming catastrophe. This big prize won't be won because you can't "solve" a problem when the problem is stupid people blind to their own stupidy and refusing to even listen to the voice of reason!