Paul Krugman versus Kenneth Rogoff on Europe

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Paul Krugman and Ron Paul recently appeared on Bloomberg and had a fierce debate on economic policy. Paul Krugman represented the Keynesian Goverment spending side, while Ron Paul defended the Austrian school of thought, advocating for much less Government intervention.

Kenneth Rogoff and Paul Krugman appeared on the BBC recently, to discuss what can solve the European crisis.  The focus of the debate was Spain, the fourth largest economy in the Euro-zone.  However, it quickly shifted to Germany, which is considered the strongest country in the Euro-zone.

Kenneth Rogoff states that the Euro-zone needs to restore competitiveness in the periphery country. Inflation needs to be induced in the Euro-zone.

Krugman notes the bubble which built up in Spain over the past 10 years, and the way to get back to being competitive is not by cutting wages.  ‘Unlimited euros need to flow out of Germany’ to the other countries, and inflation needs to increase. Rising German wages will help Spain become more competitive.

Rogoff commented that increasing debt is not the solution, but inflation needs to increase. Germany cannot have an open wallet for these countries, and reform is needed. There are only two ways this can end:

1. Europe actually becomes almost like a country, with a central Government or 2. it splits up. If this does not happen soon, the Eurozone will fall apart.

Krugman countered that Rogoff’s solution will take a generation to work, and Europe only has months to work with. Europe will never look like the United States in the near future.

Rogoff countered that a vision needs to be laid out. Germany wont be paid either through inflation, default, or making transfers. However, Germany might be ‘gamed’ if they keep bailing out every country.

Full video below:

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