“What about austerity? Spain did a lot of tightening in the first few years of the euro crisis, but not much since then: [CHART] […]
The question then is, does this constitute any kind of vindication of either the euro or the austerity regime? As you might guess, I’d say that the answer is a clear no. Yes, adjustment can take place even with a single currency; but it’s a very slow and painful process. Yes, growth can resume once you stop imposing ever-harsher austerity; also, if you repeatedly hit yourself on the head with a baseball bat, you will feel better when you stop.
What is true is that the single currency isn’t totally unworkable. It’s just extremely costly.”