Friday, April 30, 2010

Euro-skepticism and state budget deficits

Today Paul Krugman writes about the ongoing crisis in the Euro area, and he makes a very good point about its origins not solely deriving from budget deficits. He reiterates his earlier statements about capital inflows into Spain, budget surpluses there, and rising prices in Spain, the last of which is difficult to undo with a common currency.

Something very similar could be said about California and Florida, I think. Especially in the former, the state budget is in complete disarray. But the run-up in real estate prices was largely independent of that and seems likely to have produced a similar problem with prices that are too high.