How Europe Got In Trouble And The Problems Of Recovery

Paul Krugman provides a brief summary of the successes and failures of the common currency regime in the eurozone.  The common currency union helped to fuel the real estate bubbles in the eurozone.  The bursting of the bubble created problems for banks and sovereign borrowing costs escalated. Costs and prices had also risen faster in the boom countries.  This made them less competitive.   It was not possible for the troubled nations to depreciate their currencies under the common currency.  Painful structural reforms were imposed to improve competitiveness and to contain sovereign debt to GDP ratios.  The medicine has not improved the debt to GDP ratios and there has been no economic recovery in the problem countries.  The ECB has provided some support by providing liquidity but fiscal policy has been counter productive.  The common currency worked well during good times but its problems have been exposed by recessions.