Paul Krugman describes the "EUROMESS".
To synopsize and quote: "Spain’s troubles are not...the result of fiscal irresponsibility...they reflect “asymmetric shocks” within the eurozone, which ...have turned out to be an even worse problem than the euroskeptics feared.
"Spain, real estate prices soared after 2000... massive inflows of capital; Germany moved into huge current account surplus ... Spain moved into huge deficit.
"These big capital inflows raised demand for Spanish goods and services...(&)...higher inflation in Spain than in Germany.
"Bubble burst, leaving Spain with much reduced domestic demand — and highly uncompetitive within the euro area thanks to the rise in its prices and labor costs. If Spain had had its own currency, that currency might have appreciated during the real estate boom, then depreciated when the boom was over. Since it didn’t and doesn’t, however, Spain now seems doomed to suffer years of grinding deflation and high unemployment."
The trend is clear but the outcome not.
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