The “Euro Trap”
Paul Krugman writes that the Greek crisis demonstrates the dangers of nations putting themselves in a “policy straitjacket.”
“Is the euro itself in danger? In a word, yes,” writes Paul Krugman. “If European leaders don’t start acting much more forcefully, providing Greece with enough help to avoid the worst, a chain reaction that starts with a Greek default and ends up wreaking much wider havoc looks all too possible.” He says that the crisis demonstrates the dangers of putting yourself in a policy straitjacket. “When they joined the euro, the governments of Greece, Portugal and Spain denied themselves the ability to do some bad things, like printing too much money; but they also denied themselves the ability to respond flexibly to events.”
