NewsEuro was a mistake, says Nobel laureate Paul Krugman

Euro was a mistake, says Nobel laureate Paul Krugman

The euro was a mistake - that's the view of Nobel Prize-winning economist Paul Krugman
The euro was a mistake - that's the view of Nobel Prize-winning economist Paul Krugman
Images source: © Adobe Stock | INGO HOFFMANN
Katarzyna Kalus

3 July 2024 18:29

The euro was a mistake. It was supposed to be a symbol of unification, but ultimately it delayed European integration, assessed Nobel Prize laureate in economics Paul Krugman. According to him, Europe did not meet and still does not meet the criteria for a well-functioning single currency.

During the end of the academic year at Nicolaus Copernicus University, Nobel Prize laureate Paul Krugman, in an interview with PAP and a lecture, referred to how he sees the future of Europe and the problems the continent is facing. He also assessed the functioning of the common European currency.

- I remember when the adoption of the euro was being discussed, I wondered why you were doing it because the euro crisis was exactly what sceptics like me were warning about - said Krugman. In his opinion, Europe "did not meet and still does not meet the criteria for a well-functioning single currency."

He noted that the problem arises when it is necessary to adjust relative wages and prices.

It will be much harder to achieve if you have a single currency - you have to carry out internal devaluation, you cannot carry out a regular currency devaluation - he explained.

He cited Spain and Iceland as examples. The latter, he stated, "was for a while a textbook example of a financial crisis." Both countries had enormous capital flows that were suddenly cut off. The difference lies in the currency—Spain is in the eurozone, while Iceland has its own currency (the Icelandic króna).

The scholar assessed that Iceland achieved, in essence, in one day an adjustment of relative prices that took five years of high unemployment in Spain.

Krugman said that he was and still is sceptical of the euro. He assessed that there are "some advantages associated with the simplicity of a single currency, but also a significant loss of flexibility". According to him, the euro was supposed to symbolise unification in the Union, but "ultimately it probably delayed European integration". - I thought the euro was a mistake - he added, explaining that the problem is also leaving the eurozone - no one has done it yet. - I understand that it is irreversible in a sense - he said.

- Essentially, experience has confirmed all the fears and did not justify the optimism - Krugman summarised.

According to the economist, one of the problems facing Europe and the US will be an ageing population. It will affect Europe more because the estimated life expectancy of the average American is lower. Krugman explained that this is due to the so-called deaths of despair, that is, premature deaths related to drugs or suicides.

Europe, depending on the country, has a real problem. Too few workers paying into the pension system and too many retirees drawing from it - he assessed.

One way to deal with the ageing population could be migration. Krugman assured that he is positive about it. It is thanks to migration that my grandparents came to America, he said. However, he noted that "it matters where your migrants come from and what their culture is." He assessed that the United States' experience with migration, despite people not believing it, has been really positive.

He emphasised that crime rates among migrants in the USA are "quite low". In his opinion, places like New York, which receives many migrants, "do well economically and in terms of public safety", although he noted that it is more difficult in Europe.

European elites have lost a lot of credibility

Krugman also referred to financial and military support for Ukraine. He noted that Europe handled it surprisingly well.

- Without sufficient defence production capacity, Europe had a problem with supplying weapons, while in terms of economic assistance, it did quite well - he explained. - In terms of the total dollar or euro value, Europe has provided much more, but in terms of supplying weapons, the USA still dominates, although they are not the only ones - he assessed, mentioning that Poland and the UK also supplied significant weapons.

The Nobel Prize laureate believes that Europe remains a "bad actor" regarding sanctions against Russia. - Europe is not very effective in enforcing them. Many European goods are reaching Kyrgyzstan that do not stay there. Everyone knows about it and they haven't stopped it - he explained.

In his opinion, European elites have lost a lot of credibility due to the "financial crisis, the euro crisis, and the recent inflation episode". - We need several years of good performance to rebuild this credibility - he added.

Krugman told PAP that he believes the importance of the military economy in the EU will become increasingly important, and it certainly "should be". - Once, President Eisenhower warned against the military-industrial complex in the USA, which was a real problem, but at that time, the USA was spending 10% of GDP on the military - he recalled. He noted that "in Europe, there is nothing to worry about in this regard," as EU countries do not spend even 5% of GDP on armaments.

Referring to the EU's departure from importing Russian gas, the professor stated that "Europe handled it much better than pessimists predicted". - No one wants to be as dependent on Russia as Europe was - he added, admitting that the speed with which gas ports were built was impressive.

Krugman also emphasised that the USA needs Europe, and "only unreasonable Americans want the USA to have a (political) monopoly". - We want a second responsible player who shares our fundamental values, and Europe does that - he added.

In 2008, the Royal Swedish Academy of Sciences awarded Paul Krugman the Nobel Prize for formulating an urbanisation theory. The laureate integrated various fields of research in international trade and economic geography that had existed until then - it was pointed out in the justification.

His theory concerning the location of economic activity speaks, among other things, about the factors that determine favourable and unfavourable geographical areas for this activity. It explains the reasons for a given geographical area's advantage over others. These include, among others, the quality and efficiency of labour, transport and communication costs, the extent of state interventionism, or the state of economic infrastructure.

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