“If I were running a peripheral country I would say that you cannot leave” the 17-nation currency region, Krugman said at an event in Lisbon today. While it would be “extremely disruptive,” Greece is ‘very close to running out of alternatives,” he said.
Germany’s parliament approved a second Greek aid package in Berlin today, part of a plan agreed on this month to stem the euro-area debt crisis. Still, finance officials from the Group of 20 nations meeting in Mexico over the weekend rebuffed pleas for additional funding through the International Monetary Fund until the currency region first ratchets up its own resources. European leaders are scheduled to meet in Brussels on March 1-2.
Krugman also said that Portugal, which along with Ireland and Greece has received an international bailout, is not at the same stage as Greece, and “with luck it never will be.” Nevertheless, it’s “hard to believe” the country will return to bond markets in 2013.
It’s a “highly implausible proposition,” he said. “What will have happened in 19 months? The major events that will certainly have happened is a European recession and an outright undisguised Greek default and possibly a Greek exit from the euro. And none of these are going to make it easier for Portugal.”
Asked about Chinese aid for Europe, Krugman said that it’s not needed as the resources to solve the debt turmoil are “all here in Europe.” U.S. Treasury Secretary Timothy F. Geithner said in a Feb. 25 speech in Mexico that the region needs to make its crisis-fighting commitments “credible.”
German Chancellor Angela Merkel said today that there’s “no need now for a debate on increasing the capacity” of the euro area’s temporary and permanent bailout funds, citing lower bond yields for Italy and Spain.
She said euro leaders will discuss this week moving up capital payments for the permanent fund, the European Stability Mechanism, and that Germany is willing to pay in 11 billion euros this year if other countries speed up payments as well.