Must-Read: Paul Krugman: Europe’s Many Economic Disasters: “It’s depressing thinking about Greece…

…So let’s talk about something else… Finland, which couldn’t be more different from that corrupt, irresponsible country to the south… a model European citizen; it has honest government, sound finances and a solid credit rating, which lets it borrow money at incredibly low interest rates. It’s also in the eighth year of a slump that has cut real gross domestic product per capita by 10 percent and shows no sign of ending…. If it weren’t for the nightmare in southern Europe, the… Finnish economy might well be seen as an epic disaster. And Finland isn’t alone. It’s part of an arc of economic decline that extends across northern Europe through Denmark — which isn’t on the euro, but is managing its money as if it were — to the Netherlands. All of these countries are, by the way, doing much worse than France…. And what about southern Europe outside Greece?… Spain… real income per capita that is still down 7 percent from its pre-crisis level. Portugal has also obediently implemented harsh austerity — and is 6 percent poorer than it used to be….
What’s striking at this point is how much the origin stories of European crises differ…. The Greek government borrowed too much…the Spanish government didn’t… private lending and a housing bubble… Finland’s story doesn’t involve debt… [but] weak demand for forest products… and the stumbles of Finnish manufacturing…. What all of these economies have in common, however, is that by joining the eurozone they put themselves into an economic straitjacket…. [Was] creating the euro… a mistake? Well, yes. But that’s not the same as saying that it should be eliminated now that it exists. The urgent thing now is to loosen that straitjacket… a unified system of bank guarantees… a willingness to offer debt relief… a more favorable overall environment… by renouncing excessive austerity and doing everything possible to raise Europe’s underlying inflation rate — currently below 1 percent — at least back up to the official target of 2 percent. But there are many European officials and politicians who are opposed to anything and everything that might make the euro workable, who still believe that all would be well if everyone exhibited sufficient discipline. And that’s why there is even more at stake in Sunday’s Greek referendum than most observers realize.

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