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Paul Krugman on Eurozone: “The Whole Thing Could Fall Apart in a Matter of Months”

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The European economic crisis is expected to top the agenda at the G8 meeting tomorrow at Camp David. In Greece, voters will soon head to the polls for another round of elections which will be viewed by many as a referendum on the euro. Our guest today, Nobel Prize-winning economist Paul Krugman, warns the current bank run in Greece could spiral into the end of the eurozone. “It’s really quite shocking,” Krugman says. “I hate to sound apocalyptic.” Meanwhile, France’s new finance minister has reiterated that the country’s new Socialist government will not ratify the European Union’s fiscal pact calling for greater austerity. [includes rush transcript]

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This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: Our guest for the hour is Paul Krugman, the Nobel Prize-winning economist who has written many books. His latest is called End This Depression Now! Paul, I want to turn to the European economic crisis. The issue is expected to top the agenda of the G8 meeting Friday at Camp David. On Wednesday, British Prime Minister David Cameron said the eurozone could potentially break up.

PRIME MINISTER DAVID CAMERON: What I would say to the honorable gentleman is the eurozone has to make a choice. If the eurozone wants to continue as it is, then it has got to build a proper firewall, it’s got to take steps to secure the weakest members of the eurozone, or it’s going to have to work out it has to go in a different direction. It either has to make up, or it is looking at a potential breakup. That is the choice they have to make, and it’s a choice they cannot long put off.

AMY GOODMAN: Meanwhile, Greek voters will soon head to the polls for another round of elections, which will be viewed by many as a referendum on the euro. Earlier this week, Greek left-wing leader Alexis Tsipras accused the EU, the European Union, and German Chancellor Angela Merkel of playing poker with European people’s lives by insisting on austerity measures. Tsipras spoke on the BBC.

ALEXIS TSIPRAS: [translated] Our choice is to stay in Europe without austerity policies. We are in favor of the euro without the austerity that is destroying it. We are convinced that if the austerity policies continue, then the eurozone will be destroyed, and there will be a serious problem of stability within the European Union and the world.

AMY GOODMAN: Is the euro at stake, Paul Krugman?

PAUL KRUGMAN: Yeah. We have moved quite rapidly to a point where it’s easy to see how the whole thing could fall apart in a matter of months. It’s really quite shocking. You know, I hate to sound apocalyptic, but this is—just follow the logic of it. You look at what’s happening, and it could go quite quickly. So what we actually have right now is, in effect, a bank run in slow motion. People have been calling it a “bank jog” in Greece. People are pulling deposits out of the banks, understandably. Very hard to see how that situation works out. Very likely, I think, odds on, that Greece is going to be forced out of the euro in the very near future, in a matter of months, if not weeks.

That’s going to set in motion—once you see that that can happen, you’re going to have at least, again, a slow-motion, at least, run on the banks in Spain and Italy, which are of course vastly bigger. And then it is—this is the first time I’ve ever agreed with anything that David Cameron has said: that they will be forced to either—either essentially take full responsibility—it’s going to have to be the responsibility of the whole eurozone, of the European Central Bank and the Germans, to guarantee those bank deposits throughout the eurozone—or the thing is going to break up.

AMY GOODMAN: And what does this mean for the United States?

PAUL KRUGMAN: OK, there’s two kinds of transmission here, two ways of influences. One of them is just troubles in Europe hit our exports, which is a bad thing, but not catastrophic. Despite everything you’ve heard about globalization, only about 2 percent of what we make in this country is sold in Europe. So, that’s not that big a deal.

The other is a runaway financial crisis, where it could disrupt markets everywhere. I am—maybe I’m not feeling well. I’m actually slightly optimistic that we can avoid that. I actually do think that the European Central Bank and the Federal Reserve have the tools to contain that. So what worries me most is not actually the economic fallout, it’s the political fallout. Europe is the other—is our great democratic ally in this world. Europe—the European project, the European idea, is part of what makes this—part of what’s going to preserve, we hope, peace and democracy for the 21st century. If they’re falling apart, it’s terrible for all of us.

AMY GOODMAN: Let’s talk about France. François Hollande was sworn in this week as France’s new president, becoming the first French Socialist in power since the ’90s. Hollande recently said his enemy is the world of finance.

FRANÇOIS HOLLANDE: [translated] My real enemy doesn’t have a name or a face or a party. He’ll never run as president, and so he’ll never be elected, although he does govern. My enemy is the world of finance.

AMY GOODMAN: So that’s the new French president, whose—well, one of his first acts in office was to leave for Germany, and then he’s coming to the United States, and he’ll be at the NATO—not at the protests outside, but inside—in Chicago.

PAUL KRUGMAN: Yeah. I think he’s—I mean, I agree with him that finance, certainly the financial industry, has been—had way too much influence on policy. And in Europe, they have done, if anything, even more than here. They’ve said—they’ve gone to the bankers and said, “Oh, tell us, o great men, what we should do.” And they followed their advice, and it’s a catastrophe.

But Hollande has to make some decisions. There is an existential crisis in the eurozone, which is—requires that they change their view. Austerity, certainly the kind of harsh austerity that they’re doing, does not work. They need a much looser policy at—they need expansion in Germany. They need expansion at the European Central Bank, for it to be even possible for countries like Spain to survive this crisis without leaving the euro. We’re waiting to see yet. Hollande is still talking elliptically. We don’t quite know what he’s actually for yet. He probably doesn’t know yet, either.

AMY GOODMAN: Is Hollande a reader of yours?

PAUL KRUGMAN: I have no idea. He’s—apparently, his chief economic adviser is Philippe Aghion, who’s certainly somebody I know and is a reader. So we hope that the ideas are getting through.

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