Monday, March 2, 2009

Friedman can never be replaced

Uncle Milton famously predicted that the EU would not survive its first recession:

His theory is now being put to the test. A deep recession and a protracted credit crunch have munched their way across the eurozone, leaving the 16-nation currency bloc mired in crisis.

Economies are contracting at breakneck speed, social unrest - fuelled by soaring unemployment - is growing, and several member states have had their credit ratings downgraded. The possibility that at least one member of the zone will default on its debt in the coming months has alarmed economists and politicians alike.

There seem to be two big problems: (i) how to keep the PIGS (Portugal, Italy, Greece, Spain, and now Ireland) from a national default that would cause them to abandon their Euro; and (ii)

Some countries of Central Europe, like the Czech Republic and Poland, are doing relatively well. Others, like Hungary, Romania and the Baltic states, are in a state of near-meltdown. But only two newer members - tiny Slovenia and Slovakia - are protected by being inside the euro zone, and there was little support Sunday for changing the rules to allow more to join quickly.

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