The Euro Crisis Rides Again

After a quiet-ish few months, Euro panic came back in a big way on Tuesday. Spanish stocks hit a three-year low. Spain’s bond yields crept back up above 6 percent. It wasn’t any better in Italy, whose stocks fell 5 percent. That’s a lot of bad news on a day with seemingly no new news. What’s going on here?

We thought the Euro crisis was over. We were wrong. Euro leaders just kicked the can down the road. Inexplicably, they confused this for the end of the road. But now the can needs to be kicked again. Either that, or Europe needs to come up with a genuine plan to end the crisis. Time to kick the can, again.

THE CRISIS IN THREE PARAGRAPHS

Most explanations of the Euro debt crisis are about government spending. That’s not accurate. The real story is all about capital flows within Europe. During the boom years, money poured into “southern” Europe. Sometimes governments borrowed it. Sometimes the private sector did. It didn’t much matter which did. The result was the same: soaring wages and unsustainable growth. Once Lehman failed, though, the money spigot turned off. Southern Europe’s economies promptly collapsed. So too did tax revenue. That left them with swelling deficits and uncompetitive labor forces due to too-high wages…

Source:

via The Euro Crisis Is Back! (Actually, It Never Really Left) – Matthew O’Brien – Business – The Atlantic.

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