Paul Krugman: We're in a Depression as Democracy Under Siege

Monday, 12 Dec 2011 12:24 PM

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The United States and Europe are stuck in a democracy-threatening depression and not merely recovering from a strong recession, says economist and New York Times economist Paul Krugman.

Recessions are typically marked by downturns followed by relatively strong and clearly defined snapbacks.

But today, unemployment rates remain stubbornly high in both the United States and in Europe, the latter of which may see returns to more authoritarian governments if better days don't return soon.
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"Demands for ever-harsher austerity, with no offsetting effort to foster growth, have done double damage. They have failed as economic policy, worsening unemployment without restoring confidence," Krugman writes in his column.

krugman200.jpg
Paul Krugman
(Getty Images photo)
"And they have created immense anger, with many Europeans furious at what is perceived, fairly or unfairly (or actually a bit of both), as a heavy-handed exercise of German power."

That doesn't bode well for democracy in parts of Europe.

"Right-wing populists are on the rise from Austria, where the Freedom Party (whose leader used to have neo-Nazi connections) runs neck-and-neck in the polls with established parties, to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April," Krugman adds.

"And these are rich countries whose economies have held up fairly well. Matters look even more ominous in the poorer nations of Central and Eastern Europe."

Fears that the global economy may battle unprecedented economic downturns are on the rise.

Citigroup economist and former Bank of England policymaker Willem Buiter has warned that a messy breakup of the eurozone would be disastrous.

"Disorderly sovereign defaults ... would drag down not just the European banking system, but the north Atlantic financial system and the internationally exposed parts of the rest of the global banking system as well," Buiter says, according to the AFP newswire.

"The resulting global financial crisis would trigger a global depression that would last for years, with GDP (gross domestic product) falling by more than 10 percent and unemployment in the West reaching 20 percent or more."

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