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Krugman blog: The Spanish Prisoner (September 11, 2011)
One of the good ideas in Paul De Grauwe's now-essential paper (pdf) was to do a head-to-head comparison of Spain and the UK to illustrate the problems the euro faces. Here's an update.

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To some extent this may reflect the reality that British growth prospects are better because of the depreciated pound, and also the fact that Britain won't have to deflate the way Spain will thanks to being on the euro. But I believe that De Grauwe is right that the most important factor is that Britain, which can turn to the Bank of England for financing if necessary, doesn't face the risk of a run by creditors the way Spain does.

What's needed, clearly, is for Europe -- and ultimately that probably means the ECB -- to provide for Spain and Italy the kind of backstop countries with their own currencies can provide for themselves. Without that, the whole euro system is at risk of unraveling, not over the course of years, but over the course of a few weeks.



Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Mon Sep 12th, 2011 at 10:18:37 AM EST

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