Europe Can Beat This Crisis but Maybe Not the Next

by Clive Crook

Bloomberg
January 25, 2012

How gloomy should we be about the European Union? Are its problems manageable, or is it headed for systemic collapse? My answer is yes -- the problems are manageable, and the EU’s leaders are behaving so recklessly that collapse is all too possible. I don’t know whether that makes me an optimist or a pessimist.

The Peterson Institute for International Economics just hosted a debate about Europe’s prognosis. Four well-known economists, all deserving to be taken seriously, argued for and against the doomsday scenario. Let’s review their positions.

Peter Boone and Simon Johnson were the pessimists. Europe’s problems are worse than generally acknowledged, they said, and there’s no “credible path out of crisis.” (Boone and Johnson summarized their thinking in an op-ed for Bloomberg View, and the institute published their essay, “The European Crisis Deepens.’’ You can watch a video of the debate.)

Fred Bergsten and Jacob Funk Kirkegaard think such talk is overblown. “Europe’s overriding political imperative to preserve the integration project will surely drive its leaders to ultimately secure the euro and restore the economic health of the continent.” (An essay by them is also online.)

Neither side is too precise in its predictions. Boone and Johnson don’t think that systemic collapse is certain, and Bergsten and Kirkegaard aren’t saying it’s impossible. It’s a question of probabilities, and neither side gives odds. Still, Boone and Johnson think the economic hole is deeper and the politics of getting out more difficult than Bergsten and Kirkegaard maintain. Let’s consider the economics and the politics in turn.

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