Must-Read: Paul Krugman: Germany Austerity Policy

Must-Read: Paul Krugman: Germany Austerity Policy: “Once the bubble burst, there was going to be a difficult time for the Euro, regardless…

…But it’s been far worse than it needed to be and Germany bears some of the responsibility because of turning what should have been viewed as essentially a technical economic problem into a morality play. That has been a very unfortunate story…. Austerity policies have taken what was fundamentally a story about excessive private capital flows and housing bubbles and turned it into lectures of fiscal responsibility that have ended up doing a lot of damage….

Greece was going to have to do a fair amount of austerity but not this much. In the end it would still have been ugly, but not on this level. What could have mitigated the damage? The thing is that what has actually happened has not worked. Greece is still in the Euro. There’s a little bit of economic growth but at the cost of an incredible slump. The ratio of debt to GDP is higher than ever. All of this austerity has not only not resolved the fiscal problem, it hasn’t even moved it in the right direction…