Saturday, May 10, 2014
Was Fiscal Irresponsiblity the Cause Of The Economic Crisis In The Eurozone?
There was a crisis in the eurozone banking system. The central bank did a pretty good job of saving the banking system from collapse. However, it has not solved the problem of high unemployment and slow economic growth. Some have argued that the adoption of the euro as the common currency encourage governments to be fiscally irresponsible. Therefore, fiscal irresponsibility is considered to the cause of the economic problems in the eurozone. Paul Krugman does not accept that conclusion. He shows that, with the exception of Greece, fiscal irresponsibility was not the cause of the crisis. The fiscal position of countries, other than Greece, did not change with the introduction of the euro. The euro may have enabled the free flow of capital within the eurozone. This may have fed the real estate boom in countries like Spain and Ireland, but this was a private malinvestment problem and not the result of government fiscal irresponsibility.