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Krugman Says Impressed by Draghi, Depressed by Germany

Oct. 5 (Bloomberg) -- Nobel Prize-winning economist Paul Krugman said European Central Bank President Mario Draghi has made him more upbeat about a solution to the euro area’s debt crisis, even though he’s “depressed” by German politicians.

“I’m more hopeful now,” Krugman said at a conference today in Rovinj, Croatia. “I’m impressed by Draghi, but when I listen to German politicians, I get depressed again.”

While Europe needs to move quickly toward a fiscal and banking union to solve the crisis, a more realistic solution is for the 17-nation currency region to “at least” have a lender of last resort, “and not just to banks,” Krugman said.

Draghi announced details last month of an unprecedented plan to buy the bonds of distressed euro-area nations as part of efforts to save the single currency as investors dump the debt of nations such as Spain and Greece. He said yesterday that his plan, called Outright Monetary Transactions, has already lowered borrowing costs for sovereigns across Europe and that he’s seeking to sell the program in Germany after Bundesbank President Jens Weidmann objected to it.

A failure of the euro would be “catastrophic, financially and politically,” and would spell the “irreversible defeat of the European project, which is much more than economics,” said Krugman, a professor at Princeton University.

‘Creative’ Draghi

Krugman said Draghi’s initiatives have made him more optimistic. The ECB president “is very creative at finding a way through the political process,” he said.

Krugman also told an audience of Croatian businessmen, bankers and politicians that the Balkan nation shouldn’t rush into adopting the euro after its planned entry to the 27-nation EU next year.

“Because of Croatia’s euro-denominated debt, you lost some flexibility, but you should play for time,” he said. “In a year or two, you will have a better prospect, but for now I wouldn’t be rushing into the euro zone.”

To contact the reporter on this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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