Paul Krugman: European Fiscal Zombies


European Fiscal Zombies, by Paul Krugman, in NY Times:  Dean Baker is unhappy at seeing yet another article asserting as fact something that is actually just something fiscal hawks imagine: the claim that Europe’s problem economies were running up government debt before the crisis.

Dean, this is a zombie; you can’t kill it unless you shoot it in the head.

Maybe the problem is that when Dean and I try to point out that Spain and Ireland don’t look anything like Greece, that’s just too complicated. So here’s another attempt: let’s construct an “average” troubled European government. I take debt to GDP from the IMF debt database, and weight the five GIPSI countries by their GDP in 2007. Here’s what I get:

The debt/GDP ratio for the group was falling before the crisis. Maybe it should have been falling faster — but at the time, Europeans were happy to declare Ireland and Spain major success stories, and there wasn’t much call for them to do even better.

What we have now is the result of the crisis, not of fiscal profligacy before the crisis.

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