"Greek Flu" Hits Italy

Italian PM Berlusconi (right)
Photo credit: Wikipedia

Here are the links to the videos I showed in class today regarding the Italian debt crisis, which is of course linked to the larger Eurozone Crisis:

• Why is Italy in trouble?
• Italian PM Silvio Berlusconi pledges to step down

So far, the markets seem pessimistic about Italy's capacity to roll over the ~$500 billion in debt that comes due next year. The Dow 30 is down pretty much across the board.

Primer on the Eurozone Crisis

Flag of the European Union
Image credit: Wikipedia

For those of you who are curious about what's going on with the European Debt Crisis, here are some links that you might find useful.

• Q&A: Greek Debt Crisis
• Overview: European Debt Crisis
• How Might Greece Leave the Euro?
• How Can Countries Go Bust (Video)?
• Eurozone Crisis: Three Possible Resolutions

Moreover, the links on the left hand side point to other blogs and news sources that have been reporting on the issue. The news items on the left hand side provide up to date news: you can hone in on the appropriate topic by clicking the "Europe" or "Greece" links.

In related news, the crisis has claimed yet another head of state. Earlier today, Italian Prime Minister Silvio Berlusconi resigned, clearing the way for Italy to restructure its spending and debt.

What do you think? Are we out of the woods yet?

Joseph Stiglitz Expresses the Keynesian View Re: Greece

(Former) Greek PM Papandreou

In this op-ed for BBC Online, economist Joseph Stiglitz finds several faults with the current situation in Europe, ranging from the construction of Euro institutions to the Greek bailout plan.

One of the things that makes the American common currency work across the country is we have a common fiscal authority and high migration... In Europe, there's no fiscal authority, migration is more difficult and most of the countries are not willing to let themselves become empty.

One of the reasons why the European Union is not quite a "United States of Europe" is due to a lack of centralized monetary policy and labor mobility. This can lead to differences in interest and agreement that might weaken the Euro. This is one of the reasons why Europe has been so slow in dealing with the Greek crisis.

Over the longer term they're going to need European bonds and a number of other actions, and they have to recognise the framework of austerity is not the way to go.

Now, this is interesting. Stiglitz is challenging the view of Greece's creditors that austerity--in other words, massive budget and public sector cuts--is the solution. Stiglitz felt the same way when it came to the Asian Financial crises, but his warnings were not heeded.

Why might Stiglitz buck the orthodox view, here? What might be the dangers of forcing Greece to radically scale back its public sector, including its very cushy welfare state?