How Not to Solve a Crisis

Wasn’t Europe paying attention when Lehman Brothers imploded? The response to the euro-zone crisis makes you wonder.

Comments: 160

  1. Since they can't or won't do a massive gift to the banks, throw open the Treasury like we did, we will soon see some alternatives.

    You say the only other possibility is national collapse, save the big boys from their own folly, they keep all they made off the risk and at no cost to them. Taxpayer pay it all. Then cut their taxes too.

    That is nonsense. Bankers should be in jail. Banks should be sold off to new owners. Deposits guaranteed, and paid from those bloated gambling winnings.

  2. I agree. In 2011 the Fed made more money than they had ever made. They wrote a check to the Treasury for $72 billion. That is almost as much as Mittens is worth.

  3. I am not certain that the European bankers gambled like the American bankers. I believe the major problem in southern Europe is the collapse of housing prices in Spain, the reckless and dishonest borrowing of prior Greek governments (and in this the banks were foolish to have lent money to a country which has frequently gone into bankruptcy), and the failure of the Greek and Italian governments to collect taxes and to modernize their bureaucracies and approach to business to make both countries more competitive, and finally the drain of organized crime in Italy. I am not pro banks but I know a banking system is absolutely essential to the economic structure of a country and without a well run banking system countries can't succeed. We in America are trying to make the banking system less risky (with practically no help from the banks which want to continue to gamble) with more transparency and rules to prevent another melt down. Fortunately a majority of the European leaders know the cause of the problem (as our leaders have accurately diagnosed American problems), but the politics of the solution is difficult in both Europe and in the United States. We, as citizens, can only hope that our leaders succeed with the politics.

  4. Harold, we need to go left. Austerity doesn't work, and the big boys are suffocating our possible recovery. This is a classic battle between the proponents of facism and socialistic democracy. Socialistic democracy works, as it has in the U.S. for decades. Facism is the same thing as letting Mr. Potter run the town. Mr. Potter is having his day right now, almost like the devil let loose among us. Misery and corruption have ensued.

  5. As Paul Krugman has written repeatedly, the ECB needs broader powers to save the euro, powers that must be granted by the EU. Absent that, again quoting Krugman, Germany must agree to reduce rates, ease off austerity, and provide for fiscal stimulus in the EU periphery. It's a tall order to fill, but I hope that the ECB nations will rise to the challenge.

    The Fed has been heroic in keeping the U.S. economy afloat, but monetary policy is insufficient to pull us out of the quagmire. America needs fiscal stimulus, and the federal government is the sole entity able to accomplish this mission. Here's hoping that voters vote Democratic in November so that that Congress takes a more proactive stance toward economic growth in 2013.

  6. except, of course, Krugman has no idea what he's talking about, as most economists agree. Krugman would destroy good faith, credit, and financial standards.

  7. Just handing out cash is so much easier than changing habits.
    Hollande has reduced the retirement age of the french workers to 60, in germany it's 67. Hollande's plan is to align the wealth, Merkel's plan is to align the productivity.
    Which plan is harder to archieve ? And which one is fairer and more sustainable ?

  8. We are sure not taking out dividends of productivity gains as secure retirement income.

  9. Germany did already attempt to change European "habits" twice, in 1914 and 1939. Well, my dear neighbor, we do not wish to change our "habits". As far as the euro is concerned, when Greece was allowed in, with very strong German support, I for one, thought, that that was the beginning of the end.
    I've been living in Northern Europe for the last 16 years. There's much to admire. But, boy, can northern europeans be naive!

  10. Not all French workers will be allowed to retire at 60; it's very restrictive. Furthermore, retiremnets open up jobs for younger workers.

    What does it mean to "align the productivity". Whatever it means, it ain't workin'.

  11. Mr. Joe Nocera does really present an interesting contrast of the two economi/ financial catastrophes- the post-Lehamn Brothers financial meltdown in the US, and the Greek debt contagion stung euro-zone crisis. The moral is clear, that in todays globalised economy nothing remains local and hidden, but has a global systemic level fall out for the entire world economy. Secondly, under depressed economic conditions, the all-size-fits austerity prescription of fiscal contraction, instead of ameliorative fiscal-monetary expansion, or the quick-fixes of selective bail outs do prove ruinous, for, instead of healing economic wounds, such palliatives create a false sense of relief, and ultimately aggravate the disease by multiplying its causal virus, as to be seen with a fast spreading debt contagion in the euro-zone.

  12. Yes, Prof. You are so right! Austerity doesn't work, either in Europe or in the U.S.

  13. Mr Nocera you touched upon sovereignty of EU nations perhaps without realizing that to join the EU in the first place a great deal of what you or I would define as national sovereignty is automatically surrendered. You remarked that EU citizens would not vote for certain issues; there is no such provision for them to do so. The fact that Chancellor Merkel is the de facto CEO/President of the EU, is unremarkable there, though she was neither elected nor coopted to that position, which actually does not exist.

    A rather strange form of democracy is practiced there. Of the 27 EU member states, Ireland is the only country that allowed a national referendum on treaty changes last month, while none of the others got a popular vote chance to express their choice on the matter.

    The austerity program, imposed by Germany is an act of economic imperialism, and has been accompanied by, as has been amply demonstrated by Chancellor Merkels insistence, in fact a demand, that the Greeks change their elected Prime Minister and government, and that the Italians remove and replace their elected Prime Minister, without an election. These are examples of diktats from Chancellor Merkel as she runs roughshod over national sovereignty, which you did not acknowledge, or perhaps you were unaware of these events.

    Chancellor Merkal has now made clear that she would prefer that the member countries deemphasize their national characteristics such as national flags and all bow toward the EU banner.

  14. It is hardly to believe how imbecile this sounds to a german.
    Taking our money, the wealth we have build up over years, after we had stemmed the reunion alone, after we had slimmed down our social system, after we had a real wage decline for over 15 years to gain competiveness on the global market.
    There are no reparations for doing the right thing at the right time. Germany is taking big risks, and as a lender of the last ressort, it will be one of the few countries which will propably loose a lot of the money.
    And you think you get all this without a catch ?

  15. Mathias - First of all, where do you think "the wealth we have build up over years" came from? It came from those countries you are now dumping on because the euro was beneficial for the Germans. It time for them to step up and return the favor.

    But forget that, let's accept your arguments. They are based on morality, not economics. If Germany will not help out now, it will hurt everyone, including the Germans. We have a saying in English. It is foolish to cut off your nose to spite your face.

  16. Mathias Weitz,

    Surely you realise that the EU has purposely destroyed any hope of German nationalism (as it has done in Greece, Spain, France, the UK, etc, etc) by large scale multicultural migration and asylum from outside Europe. Do you think if Germany rejects the European Union now that in fifty years Germany will be a "German" country in the traditional sense.

    And please don't discount the effect of an unproductive Southern Europe on the creation of a highly competitive Germany. By having these countries in the same currency block they have suppressed the value of the Euro making German produce more competitive.

    I strongly suspect the future of the German worker, is to take some more pain, they will be asked to move over a little, to make way for a large scale migration of young desperate South Europeans moving north in search of work. What better way to create the United States of Europe. And to create the Union just in time before the tidal wave problems arrive associated with peak oil (arguably they have already started to arrive).

  17. What the European Union does share is one common currency, which prevents any country from devaluing its currency in its efforts to overcome either issues of debt and mismanagement (Greece) or the shock of huge bubbles (Spain, housing). Because of this, the European Central Bank must assume the very role it denies. Its refusal to put into place well proven strategies to balance the lurching economies of the Union threatenans its survival by withholding solutions.

    Draghi acts as a moral abitrator, not as a financial manager. And, by his vision, he is above the fray, representing no country, only the interests of the whole. But it is precisely in that task he is failing.

    The dilemna is not his alone. Economies are complicated. But there is much he can do in his role as head of the ECB to improve the current state of an European economic system on the brink of near collapse.

  18. You forgot to mention WHY Greece, Italy, Spain and the other non-Germans are in such dire straits.
    They love to get entitlements, and they hate to pay taxes (or, in Italy's case, even declare income).

    Lehman Brothers? that was 4 years ago.
    It's all about Wisconsin now, baby!

  19. Reading of the bailout for Spain the first question crossing my mind was, "They're just treating the symptom. Can't they see they're not treating the problem?"

    The economics are understood. The troubled European nations have been a laboratory for at least two years. What does not work is well known yet they're still doing it.

    Just what is the European Central Bank and German government officials protecting? Do they believe that if there is a collapse it will leave the European wealthy and Germans unharmed? Depending on the groups involved, unemployment is at 25% to 50%. Several European nations have had massive public rallies against the harsh social harm of the prescribed austerity. One or more elected governments may abrogate their agreements. This is becoming a destabilizing, explosive mix.

    This reminds me of the dread my parents and grandparents told me many Americans felt in pre-WW II years as they watched to see if Europe would come to its senses or would drag everyone into another senseless slaughter.

    Too bad we all end up tethered to Europe's train wreck.

  20. "As for us, all we can do is watch and wait and hope for the best."

    As Paul Krugman and Ezra Klein have consistently pointed out, our government could enact several measures right now that might lessen the effect of a European financial crisis. If Republicans would simply pass The American Jobs Act and the transportation bill that House Republicans refuse to act on that would be a start. And the Fed should act preemptively to steady our markets before catastrophe strikes.

    The reason President Obama had a presser on Friday was to inform the public that we could offset the worst of a European crisis by Republicans and the Fed acting now. Of course, the Republican Party and the press falsely reframed his intent as trying to blame Europe for problems he created, completely ignoring the point that we need to act now. His gaffe about private vs public sector jobs didn't help and drowned out his important message that we have tools to increase the diminished demand we will suffer if Europe goes bust by helping state and local governments hire back some of the 600,000 employees that have been laid off in the last two years, making it easier for homeowners to refinance mortgages at a lower rate and most importantly, investing in infrastructure.

    Were it not for Republican obstructionism and our inept press that seems to have an absolute aversion to informing the public, we would not be reduced to watching and waiting and hoping for the best.

  21. The solution to a "debt" crisis is probably not more debt, no matter what Krugman says. By the way why is Krugman the only economist the NY Times features? Are there no others? Does he speak for them all?

  22. Actually, I think we have many more than 1 government. We have 1 federal government, 50 state governments (comprised of bicameral legislatures in most cases, plus governors who are almost governments unto themselves); and of course most senators and representatives seem to act as if they too are governments unto themselves. And that only scratches the surface, without accounting for all the large city governments and counties, etc.

  23. In all the NYT opinion pieces on the euro, the demand is always - Germany should pay. The question if Germany would ever get the money back - never even mentioned or discussed. It is just assumed that Germany should give up hundreds of billions of dollars without demanding anything in return. The main reason the saving of the euro is taking so long is b/c Germany is demanding tighter fiscal integration for it, which other countries are reluctant to agree to. Of course, this tighter fiscal integration has to be engineered well, otherwise everyone just spends money and assumes someone else will pay.

    It is also incorrect to say that only Germany is demanding austerity measures. The IMF is as well - and the U.S. is a big part of that. If the U.S. wants to lend Spain or Italy money, they can do so directly without problems (but I wonder what U.S. voters would say to that) or indirectly through the IMF.

    Of course, Germany has a responsibility here and it is meeting it. But just writing a blank check to solve the fiscal crises will not solve any of the underlying problems of Spain, Italy or Portugal. And despite the pressure they are under, the will to reform is already decreasing in these countries - how much reform would there have been without strong demands for reform?

    And what would these pro-growth measures be exactly? More often than not, they are give-aways with no long term effect except higher debt. Obama's own program has not been a great success and isn't paid for.

  24. Obama's solutions have barely been implemented. You can't blame him. The Republicans would rather see Obama fail and the country fail as well to suit their political aims. Much of what Obama presented which would have helped us, has been nixed by the Republicans, who will enact their own stimulous if they have Obama out of the way.

  25. No one is suggesting that Germany pay out of sheer altruism. Rather, the argument is that it is in Germany's own interest to pay to prevent a collapse of the euro and potentially the EU, which would in turn be disastrous to Germany's own economy. But no, Germans would rather indulge their smug self-righteousness and refuse to offer effective help no matter what the ultimate cost to Germany itself. This is cutting off one's nose to spite one's face.

  26. Christine Lagarde's chewing out of Hank Paulsen over Lehman was quite understandable, as, clearly, Paulsen (and Geithner, and everyone else involved -- you notice I don't even MENTION Dubya) was shooting from the hip in complete panic and getting it wrong, again and again. Little different with the IMF today, where no one simple act on their part (or anybody else's) can save Europe's hash. To save Europe's own "grand experiment" will require that they reinvent themselves into a structurally coherent United States of Europe -- a 50-year, hideously complex program that lies well beyond the pay-grade of Christine Lagarde. Almost certainly can't and won't happen, and at least the euro-zone, if not the whole EC, is probably toast.

    But the individual nations of Europe's southern-tier, to survive in or out of the euro-zone, need to radically reform their absurdly swollen public sectors and governments, their unaffordable entitlement frameworks, their uncompetitive employment practices and their corrupt politics.

    Sounds simple, doesn't it? Just cease being the self-focused but lovable über-socialisms they've been for so long, and try to become real nations again that can depend reliably on themselves.

    Uh-HUH. On this one, Krugman hit the nail precisely 13 years ago when he wrote "Are You KIDDING!?" (he was actually much more circumspect), and has been right ever since -- although on most other issues has a pronounced tendency to hit his thumb, instead.

  27. But we are rapidly heading toward the problems that Europe has. Programs that have been previously passed in Congress to deal with financial problems are now threatened by the Republican House with "defunding." The Republicans don't have the votes to repeal the programs, so they will merely not fund them. A neat distinction. More gridlock.

  28. The question that needs to be asked is, "what is the appropriate role of elected leaders?" Is it to keep the music playing long enough to avoid the next financial melt down, or is it to ensure long-term stability?

    Germany is a prosperous nation, but it's per capita debt is already tied with the U.S., and Germany has not had a balanced national budget since 1972. A low birth rate and a retiring population means Germany will not be able to pay for the promises it already made to its own population, not to mention the Greeks, Spaniards, etc. Mrs. Merkel knows this. Fully backing a European bailout would put Germany's debt well above the 3% allowed under EU treaties. Germany would then be forced to either ignore the debt ceiling, creating a moral hazard, or to impose Greek-style austerity on her own population.

    Germany can help Southern Europe make reforms to become self-sustaining, but Germany cannot finance business as usual indefinitely without committing national suicide herself. But a lot of economists lately have been asking Germany to do just that.

  29. Please, Mr Nocera, return to your insightful, useful inquiry into the NCAA's treatment of collegiate athletes .

    What you say about Europe has already been said over a dozen times by your colleague Paul Krugman . He has said it too much, but he has said it better .

    Incidentally, what neither you nor, apparently, Krugman, appreciate is that, whilst a collapse of Greece would have little impact on Europe as a whole, a collapse of Spain, or Italy would, in the end, lead to a collapse for Germany as well . To believe that Germany can survive in an economically ruined Europe is fanciful to the point of idiocy .

    Germany, who benefited greatly from the creation of the Euro, and the other healthier European economies have a critical stake in the survival of the EU, currency and all . No to put too find point on it, but members of the European Union "must hang together, or they surely will hang separately" .

  30. All leaders care only about saving the banks and the rich, their constituency. To save the Countries they will have to save the people, something they have barely contemplated and have no idea how to achieve. That is why, when our countries are in ruins, the banks will still be open and doing business.

  31. Right on. It shows the difference in decision making and leadership in the EU and in the Eurozone in particular in comparison to the USA. Since the EU leadership of Barroso and van Rompuy is of non-existence and excells only in incompetence Merkel and Sarkozy took over. Nevertheless the European economic crisis has become politicized and as a result economic principles went down the drain. EU officials have the time and are fighting to hold on to their jobs no matter how much money this project will cost. More than 2 years have past since the Greek crisis started and if the former IMF director, Dominique Strauss Kahn, would still have been in office it would have been settled within months. But Merkel was against it and therefore we have now a typical EU bureaucratic mess caused by incompetence and multi-ego's of its commissioners and the Eurozone leaders themselves. No leadership such as Henry Paulson who was instrumental in containing a possible bank crisis in the USA in a matter of weeks. Bravo USA!

  32. You are assuming that the banking crisis in the US is contained. Stay tuned.

  33. The right solution is for Germany to leave the Euro. That will be much less disruptive all around than suffering through a succession of weak sisters (Greece, Spain, etc.) being forced out. Then the Euro-world can raise the minimum wage to 150Euros/hour and lower the retirement age to 50 and everyone will be happy. Oh, and everyone gets a pony.

  34. Let's hope that whomever tries to solve the European financial enigma pays a bit more attention to detail than you. France's new president is a man: François Hollande, and not Françoise.

  35. And we sit here in the US of A and think we don't have a problem! Our politics is in the gutter and it will take another Depression to right this ship of state. Only then will the smug conservatives that want Obama to fail ... Fail to understand that if Obama fails we all fail?
    Where is common sense? We have met the enemy and he is us!

  36. Let me try to explain one more time what the Left seems utterly unable to comprehend.

    We conservatives don't believe the european fiscal model is sustainable over time. We believe the model inevitably leads to excessive taxation and spending, which destroys GDP growth, which results in high unemployment and inflation. It's a death spiral, and we're seeing it play out in europe today.

    Conversely, we believe the model that worked pretty well for us in the past, can still work. Reduce the size/scope of the federal govt and return power to the states where feasible. Cut spending, reform the tax code while reducing marginal tax rates, reduce and simplify govt regulation. We believe this will spur GDP growth and will generate enough tax revenue to sustain our existing entitlement programs over the long run (albeit at a reduced level as our current spending trajectory on Medicare is insane).

    But...I know you don't "get it". To many on the Left, conservatives are just nazis, bible-clinging rubes, or as a woman I know once put it "you just want to kill all the poor people".

  37. Why do we all fail if Obama fails? Maybe we all prosper as freedom loving Americans if Obama fails. It is an open question.

  38. History really does help in understanding the present.

    Forgive me for a brief excursion back 220 years but I think it's a constructive one:

    Less than five years after the United States was founded, during the mid 1790s, Treasury Secretary Alexander Hamilton offered a controversial plan that called for the federal governement to "assume" all the Revolutionary War debt that the individual states had accumulated but could never pay off by themselves. The credit of the new country was deeply impaired by the debt overhang--the Dutch and the rest of Europe--would not lend to the new country.

    Once the individual state debts had been 'assumed' by the new federal government and were backed by the joint economic and taxing power of ALL the states, the Dutch gave a loan to the US at a reasonable interest rate and all the citizens of the country, and all the states, had a joint interest in supporting the debt of the country and making sure that it would be paid back. This was one of the most important developments in the first years of the United States that was not a "sure thing" but which guaranteed that there would continue to be a "United States." It took a lot of political maneuvering and deal-making among Hamilton, Jefferson, Washington, the individual states and the holders of the state debt to pull this off but it worked.

    Can Europe possibly do the same thing? It might but does anyone really think it will?

  39. Analogies are often made to the young United States, but Europe's situation is different in crucial ways. The young united states, despite their differences, had a common culture including the English language, a tradition dating from the Magna Carta of citizen rights and representative government, and economies based on agricultural or fishing exports. Probably most importantly, the states shared the recent memory of having banded together in a patriot fight for independence and the need to hold together to defend themselves against the vindictive British or potentially other ambitious European powers.

    Europe's nation states today lack similar ties of political or cultural affinity and strategic common cause. On the contrary, they are divided by resentments and power imbalances similar to those that caused the American colonies to break away from Britain. The analogy with the young United States is most useful as a way of highlighting this key difference.

  40. How could you forget John Adams? I thought he negotiated the loan from the Dutch.

  41. What is the point of economics or let us say macroeconomics? We have smart guys running the Fed and the ECB, but the lessons of history tell us that monetary policy is insufficient, by itself, to stimulate an economy out of a liquidity trap. Where is fiscal policy? In Europe we see no single authority to spend and cut taxes. The individual states of the US are contracting and tightening much like the separate sovereign states of Europe. Meanwhile, the US federal government is paralyzed. By what? By the out of power party that sees its way back into power in economic.

    More stimulus is needed in the form of a WPA style jobs program. This obvious truth is not obvious to everyone. Why not? The political motives of Republicans suggests itself as one big reason. The electorate is fearful and ignorant. That's a second reason. It may just be human nature. Try explaining to a crowd at a sporting event that should remain seated and not leap to their feet to try to see better.

  42. The need for more stimulus is NOT an obvious truth. Saying so doesn't make it so.

  43. Europe is not an optimal currency area, nor does it have anything like the necessary political integration to manage the euro effectively and democratically.

    Europe can either go forward to achieve the necessary political integration - a multi generation project at best, possibly unachievable at worst - as has been indicated (but then there is no guarantee that the resulting federal government would implement a sensible set of appropriate macro economic policies - if the recent past is anything to go by),

    Alternatively to role itself back to a set of nation states, with national banks and currencies and go back to a common market.

    This would have two great merits - it would facilitate through market forces the beginnings of a correction to the enormous imbalances within Europe and possibly might preserve Europe's great political achievement - the EU (continued commitment to the Euro is likely to tear europe apart as well as bringing economic ruination).

    It has two great problems - it is extremely difficult to do and is likely to create economic catastrophe of unknown scope and length. There is not political commitment to do it either.

    This is above Merkel's, Holland's, Cameron's, or anyone's pay grade. Europe is doomed to crash.

  44. While it's certainly an economic truth that lack of a single lender, or Euro Fed, keeps the Euro crisis going, it masks much greater issues of culture clash and history. It's no secret that Germany is Europe's economic powerhouse, but the rest of Europe will never relent to being "ruled" by the Germans. The general populace of any given European country is never going to agree to being told what to do and how live by Germany. Here in France, which has the largest Jewish population in Europe with many living Holocaust survivors, rhetoric that made references to Vichy govenment of WWII was constantly dredged up during the elections this year. Anyone who thinks the past hurt (to put it mildly) of two massive and atrocious world wars has been forgotten is dreaming. And even if we suspend reality and imagine that it has, culturally speaking I don't see how they can make it work. Greece will be the first experiment to see if a necessary radical cultural shift can be made to get their economic house in order. If they are unable to simply collect taxes -- an action which most devloped countries manage with far more success than Greece -- how can they turn themselves around? As we say, Good luck with that.

    BTW, it's Francois Holland (masculine), not Francoise (feminine)

  45. It's true. It's a shame too. Germany's always wanted to run Europe and here's their golden opportunity and they're blowing it. The Germans are about to destroy Europe a second time; this time by thinking too small.

    Everybody always said it, but now we're living it: it's gonna take a long long time for Germany to become a regular nation again.

  46. "Everybody always said it"

    Really?

  47. Mr. Nocera, France's new president is a man, not a woman. Hence, it's François, not Françoise.

  48. No man is an island; each is a part of the continent. Therefore ask not for whom the bell tolls. It tolls for thee.

  49. No one is talking about the countries who are doing well. Let's talk about those countries and identify what they did or did not do.

  50. How to solve the impasse to a viable US and Euro Economy; this subject is too complex for
    simple editorial suppositions; and short comment; It is a Classroom for Debate which
    should be carefully organized for Public Television; like The Doha Debates.

    The leading newspapers should agree to a PBS program and style of Debate; such as the
    classic Oxoford Debate Style used by Tim Sebastian who is moderator of the Doha Debates.

    A syllabus should be agreed upon; and should examine other current debates which happen; like the current Bretton-Woods; which can be viewed online.
    Both views conservative and liberal views should be aired; the audience should be at
    the debate at the forum and watching on TV; and so this should happen now.

    I suggest the idea of a topic: Why not think of achieving a Credit economy to replace the
    present Debit economy; and not let the boards of the central banks steer the economy; but
    a broader idea of the bank path to economic health is to think of what can be worth to
    back treasury notes; not fractional currency. The elite of central banks need to broaden
    their thinking from extracting wealth from debt to creating wealth from actual creditable
    natural resources like oil,gas, wood,water, and stop the fractional idea of loans which are
    not going to be guaranteed by speculation. As you can tell: I have not studied economics.

    And this is why most voters need a classroom; we need to see and review the arguments; so
    we can be responsible voters.

  51. From alternative thinker Ellen Brown, writing in Huffington Post:
    "The euro appears to be a marriage of incompatible partners. ...
    For Greece, it was a tragic mismatch from the beginning; and like many a breakup, it is really about money. Greece is a vivacious young woman chained to a tyrannical old man. She yearns to be free to dance on her own; but breaking up is hard to do. Defaulting on her debts will force her out of the eurozone and back to issuing drachmas, and she could get brutally beaten by speculators on foreign exchange markets for her insolence.

    The treaties binding the 17 member nations are just a set of rules, entered into by mutual agreement; and rules can be bent or broken, especially in crises. The ECB (European Central Bank) broke a litany of rules to save the banks, and so did the Federal Reserve to save Wall Street in 2008. Rules that can be bent for banks can be bent for people and nations -- not just Greece, but all the other eurozone countries threatening to file for divorce.

    Paul Simon says there are 50 ways, but here are five creative alternatives.
    1. The Open Marriage: Return to the Drachma Without Abandoning the Euro
    2. Separate Bank Accounts: Fire Up the Printing Presses at the Greek Central Bank
    3. Divorce: Just Walk Away
    4. Spousal Support: The Public Bank Option
    5. The Dowry: Impose a Financial Transaction Tax
    Read the rest here:
    http://www.huffingtonpost.com/ellen-brown/greece-and-the-euro-fifty_b_15...

  52. It is rare to see someone actually posting options. Refreshing.

  53. The international plutocracy that gains more power by the day has mastered playing governments against each other globally.

  54. -Before reading this article, I used to think that Bush was not bright enough to see the problems of not saving Lehman's brothers. After reading this article, I now see that his action as an intentional one and with probably bad intentions like those of his wars. My suspicion is supported by the fact that most of those on the head of the financial system are still in posts despite and unprecedented crisis and the change of presidents. A president who I love (for his person) but unfortunately seem to have come from no where with very strict conditions and strings just to continue the evil play.

    -Europe is very important for the US and the world, and for the US sit on the observer stand is the utmost irresponsible act. The US spent trillions on useless wars and shady moral stands and is doing nothing in the present crisis. Some people think they are clever enough and can design disaster to work their way, but logic and history tells that this is impossible and could very well turn and burn everyone in the process.

  55. Well said. What goes around, comes around, there is no escaping it, one can only postpone it for future generations.

  56. The basic premise of the EU is a mistake and no amount of tinkering can correct it's economic and structural misalignment. The EU is a bad polygamous marriage between unwilling partners who don't even like each other.

    A total lack of political courage means a complete unwillingnes to admit to the EU's existence as a fundamental mistake...and therefore there will be no lasting solution.

  57. The Germans have imposed nothing on the Greeks, don't you get it?

    The totally necessary reform measures come from IMF, ECB and EU. Read the memorandum and point me to one measure that a decent state should not implement. The Greeks just want to have the cake and eat it. They do not want to respect the EU rules they signed up to. They are simply pathetic.

    And whether printing money like the US is a workable option remains to be seen. You may keep the banks liquid but you expropriate the savers. Europe is proud to have a slightly less immoral society than the US, you know.

  58. Very sad, Joe, to see you be an apologist for the US' completely FAILED "response" to Black September 2008.

    For obvious reasons, Bush and his handlers Rove and Cheney were more than happy to "solve"

    the crisis by delivering hundreds of billions to their patrons on Wall Street without demanding ANYTHING in return.

    Less obvious is why Obama continued down that path by appointing Summers and Geithner - Robert Rubin's two junior hit men - his chief "economic" advisers.

    Who makes deals like that - except people in the service, one way or another, of those they are "helping"?

    As you well know, Joe, the eagerness of Washington to let the BANKS WHO CAUSED THE CRISIS IN THE FIRST PLACE continue the EXACT SAME PRACTICES that created the disaster -

    above all, doing nothing about DERIVATIVES, which turn so-called "investors" into legalized speculators -

    is the reason the US economy has been as strangled by "austerity by any other name" as the Eurozone has been explicitly.

    If a "serve the bankers" policy is so bad in Europe, Joe, why is it okay here in the US?

    You say a lot of important things about how Europe is mis-handling their crisis, Joe,

    but seem strangely oblivious to the fact they are only imitating the US - in reality, if not rhetoric.

    Even Jeb Bush implicitly acknowledges the US is a mess due to the "serve Wall Street" policy.

    Surely now, almost 4 years on, you can admit it too, Joe.

  59. @Bryan Barret

    Any proof for your insinuation that Germany acts imperialistically?

    The EU takes decisions in a way that allows no country to dominate.

    Germany made billions available but is still ostracised. I consider your comment an insult to an entire nation.

  60. Mr. Hollande's belief that enough was not done to promote growth by the ECB or Germany is far from a good enough explanation. Now one can understand Germany's desire to hold onto their own money, but it sounds more like Germany hold a grudge against Greece, which, if true, certainly is not a good place for Greece. It is not surprising that a country that once held the military power of the continent is now the economic power, but shouldn't Germany be working through the central bank, rather than taking on communications and ordering Greece to accept austerity? By foisting Ms. Merkel's apparent singular viewpoint on Greece, there is a lack of overall European control and too much German control.

    The central bank itself should be the only point of communications between the EU and it's subscriber countries, regardless of whether Germany is coughing up a majority of the funds, thereby taking one country's power play into another's existence away from the table. Such would also allow the proper authorities the one place where from which real monetary decisions should flow. It also allows the US to have a non-political single point of communications from which any help might come.

    By keeping Germany in the equation they obtain power that they originally tried to obtain using their military. Now they can use their wealth. Either way, the EU isn't as strong as it should be.

    Roger W. Norman
    SirMusic Studio
    http://rwnorman.typepad.com/rwnormans_beer_food_and_p/

  61. Mr. Nocera, at least you seem to understand the European dilemma better than today's NYTimes editoral. However, the analogy with Lehman is wrong: the Euro crisis is not just a credit crisis. It is (a) a balance of payment crisis - similar to the one in the 1930's with the Euro playing the role of the gold standard, caused by (b) a distortion of prices, production, and trade patterns within the Euro zone; this distortion has been caused by the Euro. Currently, European politicians are engaging in a fight how to rob German's income and wealth to use it in an attempt *not* to have to solve the crisis (and in effect prolonging the agony).

    The answer to the hypothetical question, "How could you let the Euro fail" is, "I did not let it fail, the Euro failed - all by itself. I just executed its just demise."

  62. Wouldn't "How to Solve the Crisis," been an equally compelling title?
    Had you selected this title, it would have obligated to make a proposal.

    You are an expert, you are interesting because you can give advice and guidance.
    (You are much less interesting when you complain.)

  63. It's even worse than you say. Never mind about moral hazard. And please don't climb on the "stupid-Germans" bandwagon. For the hard fact is that no one knows whether Germany (plus Holland, Finland, etc) has the resources to bail out Club Med. Quite possibly, once the international money is subtracted, Europe-as-a-whole will be insolvent, just like the bottom 90 percent of the USA.

  64. With regard to "stupid Germans", they seem to be the only ones solvent.

  65. Germany's total debt is higher than Spain's

  66. Joe, excellent summary, thanks. Europe was not made in a day...or a year...or four years...so why should President Obama's re-election be tied to Europe's crisis? He did not invent it. Mr Romney dare not imply, if he does, he is an opportunist, so what is new.

    It's time America starts to look beyond the Atlantic Europe, to Asia, Australia, New Zealand, the Pacific, the Latin Americas.There is growth there, there is opportunity there, there is optimism there. The Europeans are too proud, let them solve their own problems. They may be one euro but culturally they are different 17 entities. They are smart people, wise people, they want to do the right thing, hopefully they will learn from their collective mistakes.

  67. Those who say,"We are all Greeks," have a point. The Earth is a great ball of debt. To whom is this debt owed? Well, it is largely debt that the young owe to the old, pensioners, in particular.
    Does anyone believe the young will endure decades of austerity in order to make good on the debts owed to Granny and Grandpa?
    The debt structure is doomed. Is there a way to disassemble it in an orderly, incremental, democratic fashion? Don't see it.
    The collapse will be incendiary, totally shocking. It'll feel good when it's over.

  68. Western democracies are demonstrating over and over that they cannot control the financiers running the economy. We are letting them enrich themselves in the hope that it will allow a middle class to thrive and prosper. We're embracing a benign (hopefuly!) dictatorship by the super-rich in exchange for some welfare state benefits for the elderly and a few poor people.

    Pretty inspirational, no?

  69. NO!

  70. Euro has been a purely political medication to a sorely misdiagnozed European competitiveness malady ... with quite lethal economic side-effects.

    Neither politicians nor economists, neither bankers nor ordinary punters were able to foresee what was to going happen when euro was introduced. And neither politicians nor economists, neither bankers nor ordinary punters are able to foresee what is going to happen when euro is under immense duress. The situation just evolves too fast for any really smart decisions and any effective corrective actions. Also the market reactions are too unpredictable when the stability of the global financial market is sorely threatened. The nervous money just moves too fast. Euro runs seen in Greece and Spain seem to contaminate the economies of Italy and Cyprus, too. While the euro is believed to be too big to fail the challenges to euro are becoming too big to fix.

    On the other hand it is weirdly satisfying to fit different catastrophe theory models to this euroreality show moving on like a driverless steamroller on uppers.

  71. I will be the first to admit that I am unfamiliar with the local political breakdown of the European countries, but to say that they have 17 governments and we have only one. You seem to forget that we have 50 States and many of these States use the same argument of sovereign authority to justify policies that do not align with the policies of the federal government.
    We also probably have thousands of overlapping judicial authorities, extending from the local, county, State and federal levels. We allow State policies to induce corporations to move their production capacity to Right to Work States, which only allows for a downward slide in wage earnings and ironically enough these policies are subsidized by the federal government through higher revenues to right to work, low tax States.
    This is all made possible by the archaic tenth amendment, which was drafted at a time where mobility was extremely limited and the individual States were more like sovereign nations than unified members of these United States. All attempts by the federal government to propose uniform laws are met with resistance by constitutional constructionists where they argue that the thoughts and opinions of the founding fathers are contrary to a truly unified nation.

  72. The Supreme Court of late has been regularly telling the states that their sovereignty is very limited.

  73. Quite the opposite: See Morrison and Raich, two decisions that limited congressional authority under ICC.

  74. We, the people of the world will receive exactly that which we deserve in the next year. We allowed this irresponsible behavior to flourish on a global scale, and we will all pay the price.

  75. The banks should be shut down, the bankers prosecuted, and, if convicted, sentenced to long terms in prison, and a new type of bank instituted that functions like a regulated public utility. The size and scope of corporations should be limited. Laws should be passed that recognize that corporations are not people, and that corporate officers and boards assume a criminal responsibility for the actions of the corporations they run. The use of corporate monies in the political realm should be ended. One person one vote, no involvement of money in the public realm. Money can buy you a car or a nice boat, but not political influence.

  76. Unfortunately, only tough; high minded politicians could implement something like this and the current crop is bought and paid for. Good idea, but no way in Hell!

  77. Surely, in order to weather their current problems, the EU must hew to the words of Benjamin Franklin; "We must hang together, gentlemen...else, we shall most assuredly hang separately."

  78. The difference is we are the United States of America. Europe is not politically united.

    You need to be prepared to adjust to a failed Euro!

    Europe is in a mess and the world is so intertwined that we cannot avoid it impacting our economy. The euro seems doomed to fail because it is dependent on Germany giving back much of the gains received from the Euro Zone experiment. This is not likely unless Germany concludes they will lose even more by letting Europe continue its downward spiral. They were able to significantly boost imports, which in turn helped them reunify their nation after East Germany's collapse. If, when the euro zone fails, the consequences may be as bad as our 2008 meltdown.

    It is hard to envision Europe becoming a united nation. The United States consolidated a major portion of North America by obliterating the nations that previously occupied the land - the Native American Indian. This will not happen in Europe. More: http://bit.ly/FF1206bc2

  79. I don't know, it would seem to be an easy matter to obliterate all the Native American Indians in Europe.

  80. the American civil war (or war between the states) settled the federalism issue in the US. The native Americans were but a minor issue (for the rest of us). What to do in Europe is a very big question. Clearly if there werre individual currencies, the Greeks, Spanish and Italians would have devalued. I am not sure how to do this now. I do not believe the powers in Europe know either.

  81. I could not disagree more. You claim, "[t]he Bush administration and the Federal Reserve took an “all-hands-on-deck” approach: not just saving A.I.G. and recapitalizing the banks, but buying billions of dollars worth of subprime mortgages that were poisoning the banking system, and guaranteeing virtually all bank debt."

    That is only one leg of the three legged stool of what had needed to be done then and has only grown exponentially since--and that's WITH a lender of last resort. The stimulus package passed was like throwing a single bucket of water on a house fire, too small to make but a small dent that only staved off the inevitable and for only a very short while. The Fed has sat on it's hands evidently having had an economic stroke and forgetting what it used to know and even advised Japan to do a decade ago. The Times ran a great article showing the money that was set aside to help many innocently caught up in banking's fraudulent mortgage games is being spent by the recipient states on everything but fixing those mortgages.

    So no, Bush was not all hands on deck. Far from it. And unfortunately Obama has been prevented from what little desire he has to do what is needed by republican obstruction fueled by the same wealthy elites holding a gun to the people of Europe as they do here.

    Don't you not think Europe is watching that too?

  82. What is happening in Europe strikes me as a modern-day version of what happened in the 19 teens and again in the 1930's. The various actors even appear to be assuming their historical roles. The battle is a financial one, not a military one, but the roots are the same -- an inability of differing cultures to achieve functional cooperative arrangements, and get along for the greater good. Some of the comments above show how deeply rooted are the cultural animosities, misunderstandings, and national mythologies that drive this dysfunction. I fear the trajectory we are going to witness may well follow the historic pattern -- Europe is falling into a financial war that will not only leave all the participants much worse off, but will drag the rest of the world into the same abyss.

  83. There is a bit of a contradiction in this column. Joe correctly praises the Bush administration for saving the banks, but he fails to draw the connection between allowing Lehmann to fail and the bank's problems.

    And he does not even mention the policies that got us into the mess in the first place.

  84. This romantic notion of national sovereignty is a joke to bankers and corporations with a global reach. Once capital was allowed to cross international borders, national sovereignty went out the window.

    If Merkel's 'diktats', as labeled by one commenter, result in government reform and transparency in southern European countries, that is good for everybody, except the corrupt local elites who benefit from the current closed systems. Railing against decisions from Brussels or Berlin against reform, regulation, and transparency, is akin to plantation owners convincing poor tenant farmers to take up arms against the North to secede from the Union.

    Germans may complain about lending money, but they (and their banks) benefit in the end from the loans. Greek private sector workers work more hours than Germans. Germans get six weeks paid vacation, almost free tuition, and paid parental leave. Plus, company's works councils are guaranteed seats on management boards. That system and the extensive social safety net works well. But having it, while Greeks buy German products and tech, stems from EU subsidies to Greece and other EU member countries.

    That said, including growth measures in the deal would be wise. And ignore Hollande's populist moves. It's two steps forward and one step back.

  85. Joe,

    You are perpetuating a myth, a fiction and something that cannot be, by talking about "TOO BIG TO FAIL BANKS" as if, if we could just make banks NOT too big to fail all our problems would go away.

    The truth is some banks will always be "too big to fail". Once we accept this then we can move on to finding a sensible answer to the problem of how to sensibly regulate banks.

    If we continue to talk about "too big to fail" banks then we will never resolve the issues and always be caught hoping for the impossibly illusive solution of making banks not too big to fail.

  86. The sensible answer is obvious to those who take the time to look at our history. FDR signed two important laws to counter banking abuses: The FDIC (deposit insurance) & Glass Steagall (prevents banks from mixing commercial lending with "investment"gambling). Pres. Clinton signed the repeal of Glass Steagall so the big banks could /would bribe the politicians in power. That repeal directly led to banks gambling with our deposits,huge profits, eventual collapse & our current economic woes. All that is needed is to bring back Separation of "investment banks" from the rest of us. Let them gamble with their own cash, not ours. Bring back Glass Steagall. It worked for 50 years!

  87. You write that some banks will always be "too big to fail."
    Please explain why.

  88. It's François, not Françoise, Hollande. Françoise is a girl's name. The one thing that the Mainstream Media continues to ignore is that there is simply not enough money within Europe to bail out all the countries who will need it. Germany will encumber a huge percentage of its own GDP if it backstops Greece, Portugal, Spain and then Italy. So, despite what Mr. Nocera and others say, Germany as the means to bail out Europe is not a viable solution. Italy is the next large country which will be in the crosshairs and when that happens, this will make the French banks so insolvent that they will need recapitalization. Following Italy, France will be next. At that point, the Euro is over. Although the entire Euro crisis is a slow-motion train wreck, no one can dispute where it is headed, even if it has been headed there slowly. Slow-moving events are about to speed up now, regrettably.

  89. These bail outs are not for the little guys, they're for the banks. If there was a bailout that introduced a $200,000 per person per institution guarantee then I would support it and we could then let the banks fail without having the little guys lose their life savings.

    Iceland was looked at with horror when it said no to the bank bailouts; they then went ahead and nationalized the banks. Apparently the country and the resuced banks are doing pretty well now.

  90. And the French just lowered their retirement age to 60! There is no chance in hell that the US is going to help them with their fiscal mess. To solve our own we need to raise our retirement age to 70.

  91. Yes, let's fix the unemployment problem by making our workers have longer careers...
    I think the fundamental problem is that we have a democracy where 98% of the voters haven't a clue about how macroeconomics works.

  92. Let's wait for the reviews. I read part of the IMF report on the Spanish banking system. It makes me wonder whether the authors have any significant analytical capability at all. It appears that they did not hypothesize or theorize what the problem seemed to be at the outset, not proceeding via inductive reasoning, and therefore had the wrong objective in their data collection and proof. In reading the IMF spokespersons discussion with the FT reporter yesterday what caught my attention was almost an aside that in doing their "stress test" they had not marked the banks' assets down.

    If, in fact, they didn't do so as a basis of the report but accepted the banks' marks (on which the country has now been bailed out to the tune of 100 billion euro) they at least should have done a mark to market analysis as a worst case alternative. More whistling past the graveyard as far as I can see. And, don't overlook Draghi's 3 year "liquidity mechanism" which was, itself, a bailout, which makes these banks look like less of the basket cases that they are.

    My opinion, I could be wrong.

  93. Perhaps what we are seeing in our meltdown and Europe's is a fundamental failure of globalism.

    The overarching size of economies that it demands in order to achieve its mission of market and labor domination is becoming its downfall. This may not be such a bad thing after all.

    Like big agra farming, where the elimination of varietal strains threatens the viability of dominant crops, overarching economies like Europe and the USA are doomed to be fundamentally unsustainable and self-eliminating.

    Economic domination of the whole by a few -- the true goal of globalization -- is, thankfully, looking like a much more complex proposition than it once did.

    Again, not such a bad thing at all. And irony of ironies if it will have been Greece that brought down the whole sham.

  94. It is ironic that only a very short while ago Democrats were telling us how wonderful Europe was and how anyone who did not drink lattes was a Neanderthal. Obamacare was conceived as a plan to get as close to Europe as we could in our healhcare system.

    That dream, "Europe knows how to do things, let us Americans also do things their way" is now gone. But there seems no acknowledgement that there was indeed a dream at one time.

    This is not to deny that the US healtcare system is not a mess or that the US economic system is not a cause for worry.

    But if we stop thinking, "Europe is great, let us do things their way", perhaps we can come up with intelligent solutions of our own. But we will not know till let November if that will happen.

  95. "It is ironic that only a very short while ago Democrats were telling us how wonderful Europe was and how anyone who did not drink lattes was a Neanderthal."

    Really? I don't remember that. Do you have a link?

  96. Excuse me, when and where? did democrats say that. Yes, the other 37 industrialized nations have universal healthcare and their costs per patient are 50% less than ours. Our health industry is the problem just like our too big to fail banks are the problem worldwide. They are right in middle of all these problems along with the global banking system.

    They are all fighting to keep their status and they got the big players to do their battles.

  97. Actually, it was Karl Rove telling us that Democrats were telling us how wonderful Europe was, etc. That verbal sleight-of-hand obviously worked very well on you.

  98. Where is the leadership of Britain in all of this? Even if they don't have the euro, they do have a stake in what happens. Also, is this what we will look like in a few years if our Government and State governments don't start to work together to solve our problems, especially infrastructure. Try driving on the nation's highways and it will be revealed what terrible shape they are in and getting worse.

  99. After reading dozen of articles and hundreds of comments, I still don't know what really is going on. I confess my incapacity to understand the issues. Maybe I am not the only one. Take the recent Spanish bailout. Spanish banks are in crisis because they loaned out money, mostly for construction which are now not able to repay the loans. One solution would be to let a stronger bank take over the weaker one. No one is offering. The other solution would be for the bank to go bankrupt and investors and savers would lose their money, but it would remove a sick element of the banking system. So to speak, you take the bitter pill once.
    The temporary solution being offered is the bailout. What I don't understand is what are these banks going to do with the money. Just balance the books and, therefore, assure the investors and savers? Are they going to engage in further activity or just stand still? Will they lend out money and, therefore, promote the economy. What is the purpose of the bailout? Any elucidation will be greatly appreciated/

  100. The Spanish banks are going to use the money to pay off the German banks - who lent them the money at ridiculously cheap interest rates in the first place.

    When the German economy was booming, German citizens were saving (not spending) and the German banks had a surfeit of cash looking for a home; that cash was doled out to Ireland's and Spain's banks, who re-lent it to fuel property and consumer booms. The German cash was also used to purchase Greek government bonds and also fed a mountain of government and consumer debt across the Euro zone.

    Now the German banks (and the German savers and pension funds) are looking for their money - and it has disappeared in a puff of smoke. It would be much cheaper for all of Europe if the German government (and/or the ECB) were to directly recapitalize the German banks and forgive - or restructure - all that debt - to be collected in the much longer term, when the European economies had been given a chance to recover.

  101. i don't know either. but i believe the banks will take the money and buy spanish bonds to get that 6%to%7 rate. this lessens the pressure on spains debt until one morning the whole thing comes crashing down. its like a wayward kid that has no job and you keep fronting them money pretty soon the kid doesnt have anymore money and your without. i dont know somebody help.

  102. FPC - Excellent comment. Look what JPMC did with their bailout money. Those poor suckers who took out liar loans are not blameless by any means but they are the only ones who suffered because of the greed of
    wall street

  103. Uh, no....a massive TARP style bailout will NOT save europe. A massive bailout would add incomparable amounts to europe's debt while propping up the status quo for a bit longer.

    The problem is that the foundation of the euro is rotton; you cannot have a single currency for mutlple nation-states with utterly different cultures, work ethics, and levels of productivity. It can't work, it isn't working, and it will never work.

    Ardent Leftists (like Paul Krugman) who endlessly call for more spending, more taxes, and more debt are ideologues akin to religious fundamentalists. They believe what they believe and no amount of reason will change their minds.

  104. If you had lived through the depression you would not speak so blithely of bring on continental/global depression. It is the poor who suffer starvation, eviction, no medical services and loss of hope. If taking on more debt means less suffering and possibly improved economic conditions it is well worth the effort before crashing the shipping on the shoals of austerity and condemning millions to suffering that might have otherwise been avoided.

    Of course the economic moralist assumes the poor caused all this debt and not the elite/powers brokers who are the architects of this disaster. Nor does it enter their minds to ask all the CEOs/EVP/VP to reduce their salaries to employ more people. The obscenity of their lifestyle is never an outrage, but paying unemployment to the long term unemployed is moral turpitude.

  105. Sir, Mr. Krugman cites study after study going back nearly 100 years. What EVIDENCE are you citing?

    This i not about faith in one system or another. This is about economics and government. What are your FACTS, sir?

  106. One could say the same for those who refuse to recognize the failure of austerity programs to fix depressed economies.

  107. Really? Saving every single wealthy criminal banker in this country worked? Tell that to a poor African-American single mom in Detroit who lost her house 4 years ago. Tell that to the average American family who saw their wealth decline to early 90's levels, get 0% on their savings and can't get a loan to buy still over-priced homes.
    Forgive me, but "Too Big To Fail" was hogwash. It was imbued with propaganda and spin and consciously shallow in its examination and understanding of the history and motives of the most significant characters in the narrative of the crisis and the government response to that crisis. It was junk Hollywood entertainment with very little interest in the actual truth because the actual truth was as proprietary as an investment bank hedge fund's balance sheet; the actual truth would have been too damning to the people the writer, Mr. Sorkin, needed access to in order to write the story and sell it.
    The idea that these were noble people trying to save the world is perhaps the most insulting lie ever told. This has been a hit and run accident, and continues to be. Saving AIG was pure theft. So was TARP. There was ZERO public examination of options that existed at the time, and the cost TO WHOM of any of those options and what governments might have to do afterwards.
    What is happening now in Europe is a continuation of that policy of transfering the losses of criminal bankers onto the backs of already struggling citizens. Pure, institutionalized theft.

  108. What is interesting to me is that no one ever explained what disaster would occur if the "too big to fail" banks actually failed.

  109. Why can't Europe, or the US funnel its morally hazardous rescues through individual mortgages? The real estate bubble caused (considering shadow inventory not yet put back on the market continues to cause) home prices to be artificially high. Why can't some government take a homeowner with a 250K mortgage, reduce the homeowner's liability to a reality -based sum, eg 175K. Now to bail out the bank give the 75K in the homeowner's name, satisfying that much of his overinflated mortgage? The homeowner free of that yoke could then begin to spend, move, or otherwise pursue happiness while simultaneously stimulating the economy. Am I off base here?

  110. I think countries should boycott German goods to get things moving. Do we
    really have to live out a WWII scenario again?

  111. You mean, that Ex - President Obama asks the re - elected chacellorette of Germany this question?
    The nobel - priced President, who achieved nothing? (Quantanamo, Health care, Irak, AFG, Pakistan, Russia, China, Economy, Environment, Israel).
    The President, who is not even able to solve his OWN budget problem?

    If he ever meets Mrs. Merkel again, he might ask: "Why didn´t you help me more, to get re - elected"?

    He maybe right with that.

  112. The nobel - priced President, who achieved nothing?

    Maybe if we had a little more help from Germany in combating terrorism in Iraq, Afghanistan and Pakistan, the achievements would be more to your liking.

    It’s probably easier to have a balanced budget if you let another country protect you from terrorism.

  113. Doc--if Obama is not re-elected, start stockpiling food and water in your basement.

  114. @Mike Edwards
    You are perfectly right to recommend a greater engagement of Germany in international affairs. We have to support NATO and US on a far greater level then today. Even I have to state, that our troops are still in Afghanistan and we defeat terrorism since the early 70´s (R.A.F and so on).

    I referred to President Obamas personal achievements in comparison to Mr. Nocera negative Image of Mrs. Merkel.

    He promised a totally new approach (Yes, we can!) but
    Guantanamo is still open
    No reset with Russia
    No improvement with Israel
    No universal health care
    No structural reforms in economy (QE is only kicking the can..)

    or am I totally wrong with my view from to far away land of doom?

    Insulting Germany, as the NYT does on a day to day base, for every evil on the whole wide world looks not like a solution.

  115. Complex problems, and no easy solutions. Interested readers should read
    Paul Krugman's new book, "End This Depression Now".

  116. Not that complex... Not at all.
    Get their house in order, stop spending.... stop the welfare... stop the early retirements.... stop the promising of benefits no one can afford..

    Just like in America, same rules will help all the countries.

  117. Why bother saving the euro, it is run by an elite international banking cartel. Greece will hopefully get out from under the leeches of society and restore their national sovereignty by controlling their own monetary system. A famous banker once said "I care not what puppet is placed on the throne of England to rule the Empire, ...The man that controls Britain's money supply controls the British Empire. And I control the money supply." That's the problem Greece has, its democracy is being run by the moneychangers. Time to put the people back in control of their own country.

  118. Wealthy Greeks need to pay their taxes. They don't. If they did it would go a long way to solving Greece's woes.

  119. On the lighter side, many joke that the Germans have found a way to world domination (without having to kill anybody.) Let them be the boss, Italy, Spain, Ireland and Greece will be fine(they were never very good at money stuff in the first place)

  120. You may think this is a joke, but to the Germans, it wasn't: just listen to the former Green Party foreign minister Joschka Fischer talk about Europe and what it means to Germany's international influence. Ironically, it is the present conservative government that seems uninterested in expanding Germany's influence.

  121. What must happen is a restoration of moral hazzard. In my opinion, the US should have done that back in 2008, but we blinked. Now the eurozone is in the spotlight, and it is easier for the US to cheer them on from a distance than having taken one directly on the chin. Whether the risks in 2008 were as dire as depicted is beyond my comprehension or experience to determine, but my instinct tells me that things are only getting worse as global imbalances build and authorities continue to take the least painful steps while deferring the inevitable in hopes that somehow, perhaps by magic, things will improve.

    In reading "Wealth and Democracy" by Kevin Phillips I learned that moral hazzard has been a recurring issue because those with hands on the levers of power are also those who do not intend to incur hazzard. Socializatiion of financial risk has been going on for decades, if not centuries, and the pressures have finally built to a breaking point. Regardless the approach, we're in for years of rough financial sledding. Perhaps we can use the time to refamiliarize ourselves with truer, more enduring things in life than money.

  122. Thank God Angela Merkel has more of a spine than Bush or Obama. TARP only applied a band aid at taxpayer expense. Better to let them all fail and rebuild than continue with half measures.

  123. The rich get all the advantages of socialism while the people get all the disadvantages of communism.

  124. The banks that were too big to be allowed to fail in 2008 are now even bigger. And how many $trillions did this miracle cost us?

  125. All the analysis I've read is just focusing on the symptoms and not the the true underlying factors of why Europe and the US are on the same downward financial slope.

    How did we all get to the same place. Mark Steyn has it right.

    "That's to say, the unsustainable "bubble" is not student debt or subprime mortgages or anything else. The bubble is us, and the assumptions of entitlement.

    Too many citizens of advanced Western democracies live a life they have not earned, and are not willing to earn. Indeed, much of our present fiscal woe derives from two phases of human existence that are entirely the invention of the modern world. Once upon a time, you were a kid till you were 13 or so; then you worked; then you died."

    My spending candle burns at both ends
    It will not last the night;
    But ah, my children, and oh, my grandchildren-
    It gives a lovely light

    I hope you will enjoy the darkness.

  126. You are so right. And a common refrain is that the rich should pay more taxes as if that would balance these budget deficits. Of course these same folk calling for more taxes on the rich would scream bloody murder if they were asked to contribute one red cent more for the services they want someone else to pay.

  127. Another difference between our situation and the Europeans is that, as the sole possessor of the world's reserve currency, we have been able to literally print money to cover our debts without inflationary effects (as yet). And, as the rest of the world has floundered and investors are demanding ruinous rates of interest from our European brethren, those very same investors are parking their cash in US government securities for practically no return even though our debt levels are equivalent or even worse than our compatriots overseas and our political paralysis possibly worse.

    Investors and bond traders are presently driving the Euro crisis. Were they to be as concerned with our own fundamentals our situation wouldn't be much better How long can we expect such a situation to last?.

  128. This is a distinction without a difference. How soon we forget that the Euro was believed by "influential people" to be the replacement for the Dollar. The rise of the Euro was posing challenges to the export-oriented economies of Europe, because it was making their goods and services more expensive and increasingly forcing them to relocate production to less expensive areas. What is driving the Euro down is GOOD for the European exporters -- and bad for NAFTA, China, and the rest of the world.

    As for our own "political paralysis": Is this anything more than two political clubs playing a version of "Chicken"? Listen carefully to Glen Hubbard and tell me what the exact difference is between Mr. Romney's "plan" and Mr. Obama's. They sound suspiciously alike in their vagueness and "flexibility". .

  129. Please correct me if I am wrong, but this notion that Europe has 27 countries and America has but one, does not line up with the Governor of Florida, and many other Governors, and tea party supporters, clinging to the notion the States have rights, and they should be allowed to exercise them. In my mind it seems little difference, other then the language spoken. Europe and the United States can and will be judged according to the same standard. Federalism is in deep trouble in the United States when you see a Governor standing up to the Federal authority and daring them to act.

    Lary Waldman
    Bowen Island

  130. The reason Lagarde won't implement the solution she knows will work, the one she ridiculed Paulson for not taking, is because it will cost her and her kind a lot of money. We don't have enough money to pay our bills. Where did all of our money go? To the financial elites. It is they who are going to have to pay the bills whether they want to or not, it is just a matter of time until they do; or we all implode.

  131. An all hands on deck approach saved NYC financial rewards but has not increased the total employment in the economy. The too big to fail banks should have been allowed to go down. Smaller better banks would have arisen in time. Now the five largest banks that used to have 46% of the deposits have 54%. CDS are higher than before the 2008 collapse. Seems like the smart people on Wall Street think that the US government will keep bailing them out. Iceland let its banks go and did not collapse. The severe recession 1920- worse than the present- turned around in 1021 without massive government intervention. The depression of 1929 never really improved that much by 1938. Only the war turn things around.

  132. Read your own paragraph -- especially the last two sentences. WW2 triggered massive government intervention -- and government control -- of the economy. It went beyond Keynes on steroids to actual government control. So when your final sentence credits "the war" for turning things around, it contradicts your thesis that the big banks should have been allowed to fail.

  133. We are watching a massive train wreck set into motion when Robert Rubin, Allan Greenspan, and the mighty banking lobby turned the Glass-Steagall Act switch from on to off in 1999. It only took the investment banks and major mortgage lenders eight (8) years to implode the american housing market and banking system. We all watched as the Federal Reserve cobbled the TARP together and then injected the multi-billion fix into the banker veins. Now three years have passed and the banks have been "saved" and the nation has 8+% or 15% unemployment depending on which scratch sheet you buy. Meanwhile, only a couple of small fish have been brought before the court and the biggest sharks still continue to report billion dollar "trading losses". Our Justice system is in dire need of federal judges with a backbone like John J. Sirica and our watchdog SEC needs an army of Harry Markopolis types. But that is just fantasy because there are too many dirty hands out there.

    Now, we watch and stumble around with this or that solution as Spain tries to cope with the social implications of 20% unemployment and the Greeks are on the road to perdition. But wait, says the great OZ, let the Germans take on this or that burden and all will be honky dory.

    Dream on.

  134. What happened to the people who made the mess?
    Have they paid any penalty or even said sorry for
    inflicting the misery on the people.
    This is the beauty of modern democratic capitalist
    system. Make a big mess and walk away smiling
    all the way to the bank. In America, of course, there
    is book deal and movie. Hopefully, the book advance
    makes the retirement comfortable-cake everyday.

  135. American commentators should bite their tongue and refrain from drawing parallels between how the US handled the financial meltdown of 2008 and what Europe is doing in its own current crisis - they basically don't have a clue whats going on and instead of writing something sensible from their own (non-existent) experience, they just extrapolate from (generally biased and anti Euro) reporting of the anglo/american press.
    The $700 Billion bailout of the US banks did NOTHING to alleviate the underlying problems in the banking sector, which is that bankers now accept huge risks, which they don not understand, which they THINK they are protected against by "hedging" but they obviously don't know and did not understand that either, all driven by unbelievable greed and short-sightedness, and none of it actually contributing to a healthy growth in the economy -- just shuffling money around, which has next to nothing to do with making short-term, risk averse savings usable for long term investments. JPMorgan/Chase's current issues demonstrate effectively that this bailout was counterproductive.
    The EU and Euro is not primarily an economic enterprise, it is an historic and monumental political effort to turn Europe away from centuries of internal strife and warfare, towards a model of coexistence and cooperation unique in its sweeping vision. As all political activity, it is imperfect and incremental and is a "project in progress"...

  136. You can't top the stupidity of monetarists who think people have reason to deposit money in banks that pay no interest.

  137. But don’t be too surprised if President Obama calls Angela Merkel someday soon and asks: “How could you let the euro fail? What on earth were you thinking?”

    =================
    Considering that Germany is doing rather well and the US is doing rather badly, such a question on Obama's part would be a sign of Hubris.

    But then, when has America lacked for hubris?

    Obama is not the father of the planet and Merkel is not his child. He is, to be sure, the leader of the largest economy on the planet, but he did not make that economy, he inherited it from his predecessors (note that last s). And he has done precious little to make it grow.

  138. Joe so what's new about what you just wrote.Ive read that 20 times this week. Let the EU take a hit and let the markets regulate the outcome. Too much micromanaging by
    Policy wonks!!

  139. Oh the horror, a depression. Has anyone considered that in the grand scheme of capitalism depressions might be beneficial. Your esteemed colleague Paul Krugman has pointed out several times that the US economy doubled in size after the second world war. Is it possible that the Great Depression set the stage for the biggest economic boom in history.

    Capitalism is not linear in nature. It is cyclical. Why do we forget this point. The Great Depression merely marked the bottom of the circle. The same thing happened in the 1970s and early 80s-a cyclical bottom. What happened after stagflation-another boom. Not as widely dispersed as the post 30s boom but a boom just the same.

    Capitalism abhors an over concentration of resources because it is a middle class system. Over the course of a cycle efficiency increases and resources tend to concentrate. There comes a point when the system self corrects destroying wealth to create opportunity. This is where we stand.

    We disrupted the natural order of things by saving the banks. Capitalism should have been allowed to be capitalism. The government should have then played along with capitalism by bailing out the little man through programs to rebuild our national infrastructure. This would not have ended the depression. It would helped us to muddle through it.

    Check out the economy primeval for greater detail.

  140. The European union has 17 nations. Our union has 50 states and many are in trouble. Too, our municipalities have massive debts.

    They have ne’er-do-well Greeks. We have ne’er-do-well civil servants. If you evaluate their pensions by dividing by the average of the thirty and ten year T-Bill rates, you can see how they've become America's wealthiest at the very same time many in the corporate world have become poor via off-shoring, etc.

    We're in bigger mess. To keep the peace, our Fed has printed more and more money. But they ain't catchin on. The idea is to inflate and kick the problems down the road while waiting for Godot. But, history tells us that war or riots are more likely to show up first.

  141. Act 1 Scene 1

    1950: (Aliens have landed and emerge from their craft)
    "Greetings People of Earth"
    (twenty years later)
    1970: " Take Us to your Leaders"
    (forty two years later )
    2012: " Take Us to your Bankers"

  142. You're wrong Joe, Europe is following our script: pretend there's no problem for a year or more, kick the can for another, and finally, when the world economy is on the precipice, engineer a massive, panicked socialization of risk. The only difference is that Europe hasn't started Act III yet.

  143. Who was this famous banker? You have the quote, but the speaker remains a mystery.

  144. The capital markets are too big for fiscal resources to offset -- so when lenders as a whole go on strike relative to a big borrower like the Spanish government there is really nothing the governments can do if their relatively modest lending doesn't tip the unstable private capital markets back into "buy" positions.

    The monetary authority can perhaps offset the capital markets, but it needs to operate on a scale much larger than its ordinary mechanisms and it needs be prepared to unwind the intervention.

    Ideally, the capital market should regulate itself better before such massive fluctuations occur. An incentive for self-regulation that is lacking in the case of "sovereign" borrowers like the government of Spain is a bankruptcy law for sovereigns, which would put the creditors on notice about the risks of excessive lending and which could be used to shorten a crisis when it does occur.

    In other words, a financial sector problem needs more financial sector solutions -- in preference to fiscal subsidies, monetization, or currency regime changes.

  145. note well that the "free market" is not even a whisper here.

  146. All proposals in Euro crisis is about Germany giving money and save Euro. Next Ask Greece to get out . All Euro countries need a low value money. Depreciate euro at par with china money. Germany can take a new money . Jobs will flow from china to Europe and problems will vanish is couple of years.

  147. Hmmmm, where's your buddy Krugman to suggest that the US bail them out.

    I'll bail water out of my own boat lest it sink.

    I'll bail water out of another's boat when their exhausted bailing for themselves.

    But there's no way I'm bailing another's boat who refuses to stop filling it with water.

    Euro peons, heal thyself first of your lust of debt and spending 'for you long for others to heal your weary finances.

  148. I hope you aren't serious about them needing a TARP...

    Instead, lets get our house in order, stop the idiot spending spree, stop the early retirements, stop the welfare state.

    STOP KICKING THE CAN DOWN THE ROAD... or we will all lose everything we have worked for.

    Get your house in order!

  149. A bigger difference between Europe and the United States is that the eurozone nations are currency users and the United States is a currency issuer. Eurozone nations are using a foreign currency - the euro - over which they have no control.They are at the mercy of the ECB, the only entity that can write the check. The Unite States issues its own fit currency over which it has sole control.

  150. I'd consider ridiculous "policy recommendations" like this "quaint" ... if they weren't so DANGEROUS.

    You can't fix debt with more debt. Not as an individual, not as a country.

    The Greeks, Spanish, etc are going to have to "EAT THEIR PEAS" ... and yeah, everyone hoping the Failure in the White House will somehow get four more years to inflict AGONY on the country: Sorry ... he'll eat those Peas when they come out the other end this Fall.

    If Europe's collapse dooms Obama ... be glad: It's staving off his engineering our own....

  151. Joe Nocera's description of the Euro crisis is accurate. This column is so much more to the point than anything that Paul Krugman ever wrote on the subject.

    I'm a European citizen and I don't want the banks to get bailed out with no strings attached.
    I'm a European citizen and I don't want that my parents, my friends and I have to pay for Greek tax fraud and corruption. We work longer so that others can afford unreasonable social benefits? Absolutely not!
    I'm a European citizen and I don't want Mrs. Merkel to introduce Euro Bonds, a tool to socialize Greek debt throughout the Euro-zone.

    I'm a big supporter of the EU and we all love the Euro. But there MUST BE a better way than to bail out the banksters who gave out irresponsible loans and to reward bad financial behavior and outright fraud.

    If that's not the case then "good riddance" to the whole project!

  152. So even if the EU could pull a couple of trillion from some hidey hole (where we know all government money is hidden) and make all the European countries whole, it would only be a matter of time they would be in the same position. Like painting over the rot on a house you can only hide the underlying problem so long. Now, while we the world is adjusting to the new normal is the time to bring the worlds governments back down to size and shift to free markets. Quit with bailouts and let the chips fall. They are going to fall at some point and the higher this upside down pyramid is built the harder the crash.

  153. We're in global economy, we're not isolated, so when European economy goes down, it will have an impact on others. The good question needs to be address is "who cause" this global financial crisis, and how to "prevent" it from happening again? That should be the basic question, instead of he says she says per se, because it's simply going around a circle, don't you think?

  154. The European half measures are just delaying massive deflation. It may be the only cure.

  155. "One critical difference between America and the euro zone is that we have one government and they have 17. For all our fractious politics, in September 2008, our government’s financial officials spoke with one voice."

    More important, our "one government" had power, and exercised it, to force bailed-out institutions to change their ways. Germany can't force Spain or Italy or France to change. It's saying now: "Grant us the power over European financial institutions that the US government has over US financial institutions, and we'll belly up to the bar as the US government did."

    Sounds fair to me.

  156. Three relatively strong countries: China, Germany, Brazil.

    Just curious: What are their government debt levels?

  157. This is a perfectly formed column; it explains what, how, and why as clearly as possible.

  158. The benighted comments below blithely stating that Paulson et al should've let the banks fail are forgetting that AT&T could not pay its short term bills (i.e., payroll, etc.), as well as host of other large companies in September 08. It was not just the banks that were failing it was the world economy that was on the precipice of a Great Depression II.

    I am somewhat surprised that the readers of the Times and who are generally more informed than most Americans spout this Tea Party mantra that we should've let the banks fail. I guess some people do forget what happened when the financial world almost collapsed a short 4 years ago. WOW!!!

  159. Not calling this downturn from 2008 a depression is newspeak. When I was a student depression was defined as an unemployment rate of 9%. Spain is now 25% unemployed. Is that a depression? Or are we using gobbledeegook to define depression as related to something non of us mere mortals can define. Therefore nothing is a depression, it is all recession.

  160. The press is too hysterical about this whole thing. How many dozens of financial panics and bank runs have happened over the course of the past hundred years?
    I'm beginning not to care too much about all this. Call me when the Europeans start dropping bombs on each other again. That would be bad -although it would end the recession and unemployment problem.