Paul Krugman Explains The Eurozone Crisis In Paris

Krugman is giving a speech on the eurozone crisis in Paris. He posted his slideshow. He makes seven points about the crisis in his slideshow:

* The crisis was caused by a rapid rise in household NOT public debt. Household debt rose to Great Depression levels.

* Household debt deleveraging (savings) led to public sector deficit growth. A fall in spending leads to a fall in output and taxes.

* Part of the problem was an increase in capital flow from the North to the South, or from current account surplus countries to those with negative current accounts. Common currency prevented exchange rate adjustments to balance current accounts.

* There has been a large divergence in prices between GIPSi countries and Germany. More price inflation in GIPSi's

* Eurozone strategy has been baced upon internal devaluation via falling wages to make GIPSI's more competitive. Nominal wages are rigid. Wages have not fallen as predicted.

* Greece is the only GIPSI country with an overspending public sector. Average debt/GDP ratios for GIPSI countries not dramatic.

* Fiscal austerity has not worked to lower debt/GDP ratios in GIPSI countries. Cuts in public spending have caused GDP to fall in response.