A European Union flag, left, hangs beside a Greek national flag beneath the Parthenon temple on Acropolis hill in Athens, Greece, on Tuesday, May 1, 2012. It is “entirely possible” IMF, EU will refuse to make next payment to Greece if new govt doesn’t fulfill its commitments, UBS’s Stephane Deo says in note to clients before May 6 elections. Photographer: Simon Dawson/Bloomberg
It wasn’t that long ago that Austan Goolsbee worked in the White House, as President Obama’s top economist, and a financial crisis in Greece was threatening the global economy. Now Goolsbee is back teaching at the University of Chicago, Obama is halfway through his second term … and Greece is rearing up again.
We shouldn’t be surprised, Goolsbee says, because Greece and its fellow Eurozone nations are trapped in a cycle of differential shocks — which is to say, they’re seeing what happens when different parts of a unified currency area experience vastly different economic events. Greece is mired in recession, with low productivity growth, while countries such as Germany are seeing their economies expanding and productivity rising at a faster clip. If Greece had its own currency, it would weaken against its neighbors until growth and productivity sputtered back to life.
As it is, Goolsbee said in a phone interview Monday, there are only four ways to break the cycle while keeping Greeze in the Euro – and it’s not clear European leaders are willing to see any of them through.
“It’s not inevitable that everything blow up in a flaming mess,” he said. “It’s just that, if it doesn’t blow up in a flaming mess, it’s going to go on in a very recognizable pattern.” The rest of the interview is edited for length.
How should economic policymakers – the Fed, the U.S. government, Europeans – …read more