March 02, 2012
The Washington Post told readers that the euro zone crisis stemmed from governments living beyond their means in an article on an EU summit to deal with the region’s economic crisis. The lead sentence is:
“The leaders of 25 European countries on Friday signed a new treaty designed to prevent the 17 members of the eurozone from living beyond their means and avoid a repeat of the region’s crippling debt crisis.”
Of course the crisis was not caused by governments spending beyond their means (the purpose of the treaty). The crisis was caused by speculative housing bubbles that drove much of Europe’s economy until 2008. There is nothing in this treaty that will prevent the sort of housing bubble that led to enormous distortions in the economies of the United Kingdom, Ireland, and Spain and elsewhere across Europe.
The crisis has been worsened by the refusal of the European Central Bank to act as a lender of last resort for the eurozone countries. This has driven up interest rates, creating fiscal crises in several countries. This treaty also does nothing to address that problem.
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