7/25/2012

National budget problems and a single currency shouldn't be linked

I have always thought that the claim that saving the Euro was essential to saving the EU.  From the WSJ: 
Contrary to what is claimed daily in the media by politicians and many economists, there is no "euro crisis." The single currency doesn't have to be "saved" or else explode.
The present crisis is not a European monetary problem at all, but rather a debt problem in some countries—Greece, Spain and some others—that happen to be members of the euro zone. Specifically, these are public-debt problems, stemming from bad budget management by their governments. But there is no logical link between these countries' fiscal situations and the functioning of the euro system. . . .
The public debt problem becomes a euro problem only insofar as governments arbitrarily decide that there must be some "European solidarity" inside the euro zone. But how does mutual participation in the same currency logically imply that spendthrift governments should get help from the others? Whenever a state in the U.S. has a debt problem, one never hears that there is a "dollar crisis." There is simply a problem of budget management in that state. . . .

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1 Comments:

OpenID ken-maurer said...

"Logical" or not, the connection is obvious. As long as individual countries can manipulate their own currencies, politicians can "solve" the problem of excessive government debt simply by inflating their currencies. Then there'd be a great demand for new government programs to "solve" the problems caused by inflation. Just think how happy California politicians would be if they could do the same.

7/26/2012 10:04 AM  

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