77

Reform or Divorce in Europe

NEW YORK – To say that the eurozone has not been performing well since the 2008 crisis is an understatement. Its member countries have done more poorly than the European Union countries outside the eurozone, and much more poorly than the United States, which was the epicenter of the crisis.

The worst-performing eurozone countries are mired in depression or deep recession; their condition – think of Greece – is worse in many ways than what economies suffered during the Great Depression of the 1930s. The best-performing eurozone members, such as Germany, look good, but only in comparison; and their growth model is partly based on beggar-thy-neighbor policies, whereby success comes at the expense of erstwhile “partners.”

Four types of explanation have been advanced to explain this state of affairs. Germany likes to blame the victim, pointing to Greece’s profligacy and the debt and deficits elsewhere. But this puts the cart before the horse: Spain and Ireland had surpluses and low debt-to-GDP ratios before the euro crisis. So the crisis caused the deficits and debts, not the other way around.

Deficit fetishism is, no doubt, part of Europe’s problems. Finland, too, has been having trouble adjusting to the multiple shocks it has confronted, with GDP in 2015 some 5.5% below its 2008 peak.