In his latest column for the New York Times, Paul Krugman worries that the euro, originally intended to bring the nations of Europe closer together, is instead fueling an increasingly bitter squabble between the continent's northern and southern regions.
Krugman praises the European Central Bank for its recent announcement that it would cut interest rates in the face of falling levels of inflation. He calls the move "obviously appropriate." However, the decision was greeted with anger by bankers in Germany, Austria, and Denmark. Krugman partially chalks this up to the German public which, he says, "is eternally vigilant against the prospect that those lazy southern Europeans are going to make off with [their] hard-earned money." But there are deeper, ideological schisms at play, too.
But there’s also a real issue here. Germans just hate inflation, but if the E.C.B. succeeds in getting average European inflation back up to around 2 percent, it will push inflation in Germany — which is booming even as other European nations suffer Depression-like levels of unemployment — substantially higher than that, maybe to 3 percent or more.
This may sound bad, but it’s how the euro is supposed to work. In fact, it’s the way it has to work. If you’re going to share a currency with other countries, sometimes you’re going to have above-average inflation. In the years before the global financial crisis, Germany had low inflation while countries like Spain had relatively high inflation. Now the rules of the game require that the roles be reversed, and the question is whether Germany is prepared to accept those rules. And the answer to that question isn’t clear.
The truly sad thing is that, as I said, the euro was supposed to bring Europe together, in ways both substantive and symbolic. It was supposed to encourage closer economic ties, even as it fostered a sense of shared identity. What we’re getting instead, however, is a climate of anger and disdain on the part of both creditors and debtors. And the end is still nowhere in sight.