The eurozone crisis threatens the world’s economic stability, but not for the reasons people think. The crisis was predictable and predicted, but schadenfreude is neither appropriate nor affordable. The task now is to extricate ourselves from this mess, and to learn its lessons. This means identifying the factors behind the debt crisis, and deciding how best to bring the calamitous eurozone experiment to an end.
The economic threat comes from a further weakening of an already enfeebled western banking system, as a result of unwise lending and borrowing on a massive scale. Why did the West borrow so much? It has become fashionable to blame China’s huge surplus. The West’s debt problem, it is argued, stems from China’s excessive savings, which let the West borrow cheaply on a vast scale; until the Chinese start to spend more, there is little the West can do. The most recent expression of this theory was in a speech given by the Governor of the Bank of England, Sir Mervyn King, in Liverpool a fortnight or so ago.
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