Krugman: Two Cheers for Draghii

     You don't often hear it, but Krugman makes the point that ECB President Draghii is doing a pretty good job. Since his "going Chuck Norriss" or maybe even channeling a little Ben Bernanke, the markets have given him a thumbs up-particularly since August.

     We've seen both Spanish and Italian bond yields drop from the 7% range back down to the 5% range. However, the problem is the need for internal devaluation. The Robert Samuelsons of the world of course, believe that everything is about "more pain, more gain."

     Krugman's title is almost incomprehensible to a Samuelon, a Wall St. Journal editorial page writer, or a Republican of any stripe: "pointless pain."

     For those who get excited about nothing but austerity, there is no such thing as pointless pain. The more pain the better.

     For more about the austerity lovers:

     http://diaryofarepublicanhater.blogspot.com/2012/09/the-wsjs-crocodile-tears-for-middle.html

      Krugman praises Draghii for getting the bond yields down:

      "Good for him. But you still need “internal devaluation”: a sharp fall in costs and prices relative to the core. And that’s a slow, painful process."

       http://krugman.blogs.nytimes.com/2012/09/26/euro-update-the-perils-of-pointless-pain/

       This is due to the major current account deficits the periphery countries suffered vis a vis Germany during the boom years of the early 2000s.

       "The basic story of the euro crisis remains the same: it’s essentially a balance of payments crisis, misinterpreted as a fiscal crisis, and the key question is whether internal devaluation is really workable."

       "What? OK: the roots of the euro crisis lie not in government profligacy but in huge capital flows from the core (mainly Germany) to the periphery during the good years. These capital flows fueled a peripheral boom, and sharply rising wages and prices in the GIPSI countries relative to Germany."

       "Then the music stopped."

        "The combination of deeply depressed peripheral economies (which meant surging budget deficits) and fears of a euro crackup turned this into an attack on peripheral-government bonds. But the root remains the balance of payments/cost problem. And any resolution must involve getting costs and prices back in line."

        So Draghii has done a good job. The problem are austerity lovers who think causing us more pain makes us more virtuous:

        "I really do think Draghi has done very well. But he can’t make internal devaluation work on his own, and he can’t save Europe if its leaders continue to think that gratuitous infliction of pain is sound policy."