Paul Krugman: The Money Trap

When Greece hit the skids almost four years ago, some analysts (myself included) thought that we might be seeing the beginning of the end for the euro, Europe’s common currency. Others were more optimistic, believing that tough love — temporary aid tied to reform — would soon produce recovery. Both camps were wrong. What we actually got was a rolling crisis that never seems to reach any kind of resolution. Every time Europe seems ready to go over the edge, policy makers find a way to avoid complete disaster. But every time there are hints of true recovery, something else goes wrong.

And here we go again. Not long ago, European officials were declaring that the Continent had turned the corner, that market confidence was returning and growth was resuming. But now there’s a new source of concern, as the specter of deflation looms over much of Europe. And the debate over how to respond is turning seriously ugly.