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$1 Rent for Billionaire Broad
So much for Villaraigosa's new era of transparency and shared sacrifice
BY TIBBY ROTHMAN
Welcome, Los Angeles, to your postrecessionary urban life. Prices are being
hiked by the City Council for superfluous items like DWP power and trash
pickup, the city is issuing $500 red-light camera tickets to increase
revenue, and the mayor and council are slashing library service in poor
neighborhoods. But, while Angelenos were cobbling together the rent, City
Councilwoman Jan Perry and others were involved in secret negotiations to
lease billionaire Eli Broad a piece of choice, taxpayer-owned property next
to Walt Disney Concert Hall for $1 a year. All this unfolded as City Hall
leaders, including Mayor Antonio Villaraigosa and Perry, who represents
downtown, were advocating municipal ... MORE »
http://www.laweekly.com/2010-04-29/news/1-rent-for-billionaire-broad?src=newsletter
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http://www.nytimes.com/2010/04/30/opinion/30krugman.html?th&emc=th
The Euro Trap
By PAUL KRUGMAN
NY Times Op-Ed: April 29, 2010
Not that long ago, European economists used to mock their American
counterparts for having questioned the wisdom of Europe's march to monetary
union. "On the whole," declared an article published just this past January,
"the euro has, thus far, gone much better than many U.S. economists had
predicted."
Oops. The article summarized the euro-skeptics' views as having been: "It
can't happen, it's a bad idea, it won't last." Well, it did happen, but
right now it does seem to have been a bad idea for exactly the reasons the
skeptics cited. And as for whether it will last - suddenly, that's looking
like an open question.
To understand the euro-mess - and its lessons for the rest of us - you need
to see past the headlines. Right now everyone is focused on public debt,
which can make it seem as if this is a simple story of governments that
couldn't control their spending. But that's only part of the story for
Greece, much less for Portugal, and not at all the story for Spain.
The fact is that three years ago none of the countries now in or near crisis
seemed to be in deep fiscal trouble. Even Greece's 2007 budget deficit was
no higher, as a share of G.D.P., than the deficits the United States ran in
the mid-1980s (morning in America!), while Spain actually ran a surplus. And
all of the countries were attracting large inflows of foreign capital,
largely because markets believed that membership in the euro zone made
Greek, Portuguese and Spanish bonds safe investments.
Then came the global financial crisis. Those inflows of capital dried up;
revenues plunged and deficits soared; and membership in the euro, which had
encouraged markets to love the crisis countries not wisely but too well,
turned into a trap.
What's the nature of the trap? During the years of easy money, wages and
prices in the crisis countries rose much faster than in the rest of Europe.
Now that the money is no longer rolling in, those countries need to get
costs back in line.
But that's a much harder thing to do now than it was when each European
nation had its own currency. Back then, costs could be brought in line by
adjusting exchange rates - e.g., Greece could cut its wages relative to
German wages simply by reducing the value of the drachma in terms of
Deutsche marks. Now that Greece and Germany share the same currency,
however, the only way to reduce Greek relative costs is through some
combination of German inflation and Greek deflation. And since Germany won't
accept inflation, deflation it is.
The problem is that deflation - falling wages and prices - is always and
everywhere a deeply painful process. It invariably involves a prolonged
slump with high unemployment. And it also aggravates debt problems, both
public and private, because incomes fall while the debt burden doesn't.
Hence the crisis. Greece's fiscal woes would be serious but probably
manageable if the Greek economy's prospects for the next few years looked
even moderately favorable. But they don't. Earlier this week, when it
downgraded Greek debt, Standard & Poor's suggested that the euro value of
Greek G.D.P. may not return to its 2008 level until 2017, meaning that
Greece has no hope of growing out of its troubles.
All this is exactly what the euro-skeptics feared. Giving up the ability to
adjust exchange rates, they warned, would invite future crises. And it has.
So what will happen to the euro? Until recently, most analysts, myself
included, considered a euro breakup basically impossible, since any
government that even hinted that it was considering leaving the euro would
be inviting a catastrophic run on its banks. But if the crisis countries are
forced into default, they'll probably face severe bank runs anyway, forcing
them into emergency measures like temporary restrictions on bank
withdrawals. This would open the door to euro exit.
So is the euro itself in danger? In a word, yes. If European leaders don't
start acting much more forcefully, providing Greece with enough help to
avoid the worst, a chain reaction that starts with a Greek default and ends
up wreaking much wider havoc looks all too possible.
Meanwhile, what are the lessons for the rest of us?
The deficit hawks are already trying to appropriate the European crisis,
presenting it as an object lesson in the evils of government red ink. What
the crisis really demonstrates, however, is the dangers of putting yourself
in a policy straitjacket. When they joined the euro, the governments of
Greece, Portugal and Spain denied themselves the ability to do some bad
things, like printing too much money; but they also denied themselves the
ability to respond flexibly to events.
And when crisis strikes, governments need to be able to act. That's what the
architects of the euro forgot - and the rest of us need to remember.
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