The Eurozone Problem in One Picture

Stephanie Flanders directs us to to this picture from HSBC which nicely summarizes the problems the Euro has created for Greece over the past decade.

It is striking how the Eurozone periphery has lost so much competitiveness as indicated by the real exchange rate appreciation. Stephanie Flanders also makes the point that even if the European bail-out of Greece takes place it only buys time and does not address the real problems: Greece’s debt overhang and its inability to restore fiscal order. Flanders recommends a more radical but meaningful solution of (1) restructuring Greece debts and (2) setting a higher inflation target for the ECB. She acknowledges these are “unthinkable” options, but when the alternative could be a Lehman II why not consider the “unthinkable”?

About David Beckworth 240 Articles

Affiliation: Texas State University

David Beckworth is an assistant professor of economics at Texas State University in San Marcos, Texas.

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