Paul Krugman and Ryan Avent sing in chorus: the European monetary system has imposed on Europe constraints similar to the gold standard and is therefore having now consequences similar to those produced by the latter in the 1930s. A cheery thought. Of course it won't be so bad this time around, Krugman adds, because Greece isn't Germany. Still, with Spain now in the markets' line of fire--and "too big to save" (to borrow Krugman's bon mot of yesterday)--it's only a matter of time until unrest spills into the streets (as it already has in Greece and Spain), topples governments (as it already has in Greece), and panics markets with images of uncontrollable chaos. The disastrous US turn to austerity only makes a bad outcome all the more inevitable. Only a fool would dare to predict how bad.
When I spoke at IFRI in Paris 14 months ago, I predicted that Europe would head down this road. In the meantime, I have listened to many commentators warn me that my pessimism was characterological rather than analytical. Perhaps it is. Let's hope so. Today I'm with Krugman and Avent.