Mild slump became a plunge: Krugman

Nobel laureate economist Paul Krugman said the world is in a “coordinated global slump” that “looks worse in Europe and in Japan” than in the US.

“What began as a relatively mild recession in the US, has now turned into a plunge,” Krugman said at an event in Brussels today. “This is a crisis that is hitting manufacturing real hard.”

Krugman, who has called for increased fiscal stimulus from both the US and Europe to combat the worst recession since World War II, said conventional central-bank instruments are not enough to revive economic growth. European Central Bank President Jean-Claude Trichet and US Federal Reserve Chairman Ben S Bernanke “are not able to use their conventional tools to deal with the slump,” the Princeton University economist said.

For the ECB, “the whole intellectual basis for the euro rests on the fact that monetary policy alone can do the job,” Krugman said. “The ECB has not gone the whole way as yet, although I would be very surprised if it does not eventually.”