Tags: Paul | Krugman | Euro | Zone | Collapsing

Paul Krugman: Euro Zone is Collapsing

By    |   Thursday, 02 Jun 2011 08:41 AM

While a new bailout package is in the works for Greece, Nobel laureate economist Paul Krugman doesn’t think that offers much salvation for the euro zone.

Indeed, that association, which includes the common currency, is heading for destruction, he writes in The New York Times.

“If you ask me, the water level has now dropped so far that the fuel rods are exposed. We really are in meltdown territory.”

krugman200.jpg
Paul Krugman
(Getty Images photo)
Borrowings from the strong central banks of Europe, such as the Bundesbank, are all that’s keeping alive the banking systems in peripheral countries such as Greece, Ireland and Portugal, Krugman says.

Central banks in the strong countries lend to the weak central banks, which then farm out the money to private banks in their countries.

But that arrangement isn’t working well, Krugman notes. “The Bundesbank is already very upset about its large claims on troubled debtors, which are backed by sovereign debt as collateral,” he writes.

“Yet if financing stops in the wake of a debt restructuring, the result will be to collapse the debtor nations’ banking systems.” And that could mean the end of the euro, Krugman says.

BlackRock CEO Laurence Fink sounds alarm bells too. “The banking system in Europe owns all this debt,” he tells Bloomberg.

“If we restructure one country, we’re now basically putting huge capital stress on these banks. Before we restructure any country, we’re going to have to restructure the banking system in Europe.”

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While a new bailout package is in the works for Greece, Nobel laureate economist Paul Krugman doesn t think that offers much salvation for the euro zone. Indeed, that association, which includes the common currency, is heading for destruction, he writes in The New York...
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Thursday, 02 Jun 2011 08:41 AM
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