Monday, November 05, 2012

Two legends in economics wrestle over the euro's future

Mundell: If Europe moves to "a more perfect union" in which a central authority is empowered to enforce strict fiscal discipline on wayward governments––and Germany and other rich nations help finance their southern neighbors until that happens––the euro can be saved and growth will resume.

For Meltzer, the central bankers and politicians facing the euro crisis are targeting the wrong issue. "They're hammering away the debt problem," he continues. "That's not what they need to do. The bigger problem is cost of production." The southern countries, Meltzer argues, will not grow "if production costs in Spain and Italy are 30% higher than in Germany, which is now the case."

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