Support justice-driven, accurate and transparent news — make a quick donation to Truthout today!
Martin Wolf, an economics commentator at The Financial Times wrote a very important column recently on the tough choices facing countries in the euro zone.
“The euro zone, as designed, has failed,” Mr. Wolf wrote on May 31. “It was based on a set of principles that have proved unworkable at the first contact with a financial and fiscal crisis.”
One way to summarize his argument is to say that slow-motion bank runs are already in progress on the European periphery, and that these countries’ banking systems are being sustained only by a process in which, say, Ireland’s central bank borrows from the Bundesbank and then lends the funds to Irish private banks to replace the fleeing deposits. The claims among central banks as of the end of last year are shown in the graphic on this page.
You can see why we’re now at the panic stage.
The Bundesbank is already very upset about its large claims on troubled debtors, which are backed by sovereign debt as collateral. Yet if financing stops in the wake of a debt restructuring, the result will be to collapse the debtor nations’ banking systems, a process Mr. Wolf believes would lead to their ejection from the euro. (He makes me look like an optimist!)
Don’t miss a beat – get Truthout Daily Email Updates. Click here to sign up for free.
“The euro zone confronts a choice between two intolerable options: either default and partial dissolution or open-ended official support,” Mr. Wolf argued. “The existence of this choice proves that an enduring union will at the very least need deeper financial integration and greater fiscal support than was originally envisaged. How will the politics of these choices now play out? I truly have no idea.”
So the European Central Bank keeps saying that restructuring is unthinkable. Yet austerity programs are not working; the prospect of a return to normal financing is receding rather than approaching.
If you ask me, the water level has now dropped so far that the fuel rods are exposed. We really are in meltdown territory.
Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.
Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.
Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including “The Return of Depression Economics” (2008) and “The Conscience of a Liberal” (2007). Copyright 2011 The New York Times.
A terrifying moment. We appeal for your support.
In the last weeks, we have witnessed an authoritarian assault on communities in Minnesota and across the nation.
The need for truthful, grassroots reporting is urgent at this cataclysmic historical moment. Yet, Trump-aligned billionaires and other allies have taken over many legacy media outlets — the culmination of a decades-long campaign to place control of the narrative into the hands of the political right.
We refuse to let Trump’s blatant propaganda machine go unchecked. Untethered to corporate ownership or advertisers, Truthout remains fearless in our reporting and our determination to use journalism as a tool for justice.
But we need your help just to fund our basic expenses. Over 80 percent of Truthout’s funding comes from small individual donations from our community of readers, and over a third of our total budget is supported by recurring monthly donors.
Truthout has launched a fundraiser to add 500 new monthly donors in the next 9 days. Whether you can make a small monthly donation or a larger one-time gift, Truthout only works with your support.