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I agree

from Peter Radford

Yes. I agree.

The negotiations concerning the Greek bail-out were absurd. They showed in vivid highlight just how foolish the entire Euro exercise is. Countries with economies as varied as those of Europe ought not bind themselves together without going the whole way into some sort of federal political and budgetary union. That would allow funds to move about internally so that regions falling into distress can get help ‘anonymously’ without the need for the tragic farce we have just witnessed.

This is what happens inside the United States. Funds routinely move about, Federal programs make sure that some basic services – such as Social Security – are paid from a central source so if a state like Florida gets into difficulty bills still get paid and services are still provided. Were this not so, and if Florida had been responsible for, say, those pensions back in 2009, it would have faced a crisis similar to that in Greece. Indeed the imbalances in the flow of funds into and from Washington are what allows many states in America to pretend that they are fiscally secure.

Of course this doesn’t mean that state budgets are immune to crisis. It is still quite possible for reckless fiscal policy to exist at the local level. What the Federal budget does allow, though, is that the adjustments that are made are not as severe as those just imposed on Greece. Florida has not, for instance, been thrown into a depression-without-end. By removing the cost of many basic services from the budgets of the states the central government mitigates the cost of adjustments when a locality errs in its own policies.

All this is, of course, in addition to the benefits of free inter-state commerce and having the same currency.

There is nothing like this in Europe. So the Euro is doomed. As it was from the start. Because local errors and plain happenstance are not going to go away.

There is no news in this. It was well discussed and documented at the time the Euro was launched. Back then the hubris of the pro-Euro technocrats was sufficient to drown out the naysayers. But history is having the last laugh.

So. Yes. I agree.

To what?

To the notion that it is not the Greeks who ought to leave the Euro. It is the Germans.

If the Germans are unwilling to set up a central Euro-federal budget such that internal imbalances can be taken care of automatically, and if they are also unwilling to write down debtor nation debt when it becomes obvious those debts are unsustainable, then they ought to leave the Euro. Because to stay in is simply to destroy it.

Persistent German trade imbalances threaten European economic stability just as much as the uncompetitive nature of historic Greek economic policies. The Germans seem very proud of their export surplus without noting that, in effect, they are also exporting unemployment. Perhaps their economists realize this. Perhaps it is this realization that presses them to impose on Greece what is a depression-without-end: it saves them from having to explain to German voters how unsustainable German policy is.

Were Germany to leave the Euro its new currency would no doubt appreciate rapidly against the now German-less Euro. The necessary adjustment would happen. The Greeks could get back on their feet, their trade would become more competitive, and the Germans would suffer export losses as their currency rose to reflect the true consequences of recent German policy. But the germans would also gain from the cheaper goods they could buy abroad.

This happy outcome seems so much more preferable to the current situation. The Greeks could modernize their economy without being forced to live in perpetual depression. And the Germans could afford to buy vast loads of stuff from their Euro neighbors at bargain basement prices. Heck Germany might even become an importer.


I agree that won’t happen.

  1. July 24, 2015 at 7:41 pm

    Why does Germany have to export in order to be strong? That’s right, because not even the smart and industrialized Germans have sufficient individual income in their own national hands..to make their economy function as economic theorists only dream they have. If each nation would implement a universal dividend and a retail discount to consumers that was rebated back to participating merchants so that they could be whole on their margins and overheads the twin bugaboos of modern economies, i.e. scarcity of available individual income and inflation would be eliminated…and the glaringly obvious monopolistic business model of Finance which creates the life blood of the economy and the means of survival by EVERYONE would be balanced by a paradigm of Gifting in the area of consumer finance. If the intellectually curious and proud former owner/operator of a boutique residential window cleaning business can see this…why can’t professional economists and their pundits see it as well? Regardless, implement the policies…prosperity will result.

    • Mike Hall
      July 28, 2015 at 9:55 pm

      Is what you are advocating a more advanced version of simply a system of transfers that operates globally, on all currencies (perhaps like Keynes’ Bancor system?), in *fully closed loop*, all imbalances included?

      (If I understand what you’re advocating fully, that sounds like a marvelous way to live, if we could keep it working.)

      Maybe the ordinary German (majority) citizens should realise they are giving away their own resources in real terms of trade? Literally losing the use of those goods exported, dumb huh?

      And also realise that it happening in order to make the Capital owning rich and super rich, even wealthier in monetary and asset terms.

      Global gubbermint tho’ ? How to make that system run democratically?

      Well, we could exclude all Capital owners, beyond modest savings and family home, from holding any governing council or adviser positions.. their lives being economically close to those of a median related income… for a start?

  2. July 25, 2015 at 3:43 am

    Or Europe could amend the Stability and Growth Pact to add a “No trade surpluses, no trade deficits” rule with higher precedence than the fiscal rules. First, recognise that trade imbalances are the problem.

    Then it would be up to economists and politicians to decide how to stop trade imbalances from accumulating. It could be by protectionist measures (currency, tariffs, subsidies) internal adjustment of the surplus economies (higher wages, inflation, more leisure) or by positive transfer mechanisms (welfare stabilisers, grants, investments). Very quickly it would become apparent that positive transfers are a vastly better mechanism because they make the pie bigger, even for the surplus economies that at first sight have to give out free money.

    Currently European elites hold the condescending opinion that only fiscal balances matter, being a matter of moral discipline, and trade imbalances are irrelevant or even a badge of merit for those who win. This perception has to stop. Current account imbalances circumscribe fiscal imbalances. If money accumulates in a region, even sloppy tax collection will eventually capture it. If money constantly leaves a region no amount of fiscal discipline will stem the flow.

    Give Mr Schäuble a “balanced trade” rule and see how quickly he will fix the Eurozone, either by taking Germany out of the Euro or by some of the much better ways that present themselves.

    • Mike Hall
      July 25, 2015 at 10:34 am

      What’s fairly obvious is that European elites already know these issues & effects, but don’t care. Godley and others told them 20+ yrs ago, and if they don’t see it now, after all the Euro periphery problems, then it’s because they don’t *want* to see it.

      Why? Also obvious. Because the elites – the Capital owners – still find it highly profitable, and it is pushing back the returns to Labour to pre-WWII levels.

      These ‘negotiations’, as Varoufakis has pointed out, were never about economics, rather Power politics from the beginning. (And I don’t believe Syriza had any choice but to follow the charade..)

      Nor, really by definition and plain observation, has there been any ‘democracy’ at work on the Troika side. Democracy is supposed to operate in the interests of the majority. It should be obvious to any economist that Greece’s ‘deal’ is as bad for creditors as it is for the debtors. But the vast bulk of creditors are no longer private, but public institutions, so the Troika couldn’t care less what is lost.

      I am reading a book just now by a journalist who spent 10yrs or so working for Reuters global news service (largely bank rolled by big Finance’s trading operations).

      I reccommend everybody read it & get a reality check. I knew, of course, that big money essentially buys the main stream media it wants, but Patrick Chalmers’ book puts great detail on that fact.

      Before we try and ‘fix’ anything in the interests of majority citizens, we need to wrench our democracies back (if we ever had them? I doubt it) off the elites – the Capital owners.

      And to do that, we need to develop a media sector to counter balance the bought propaganda of the mainstream. That means beholden to no concentrations of power in the private sector, thru’ ownership or advertising.

      And equally not beholden to concentrated power in the public sector either, for obvious reasons. So how do we do it? Easy – a commons funding model. The bulk funding is provided from public funds, but distribution is determined by citizens, each having an equal amount to disburse to the media providers of their choice. Say, on an annual basis, by an e-voucher system.

      We want balance, right? So the aggregate funding sum disbursed this way needs to be set simply at 50% of the total media sector turnover. Let the private sector determine how much resources they want to expend, knowing that it will be matched by the commons sector. And to avoid messy regulation, it should include all media, whether factual or entertainment oriented.

      Now, I do hope that the *macro* economists here will realise that ‘who pays’, at the macro level, becomes a very circular argument… I am confident that in *macro* terms, ‘who pays’ (ultimately) will not change very much at all. Just who gets to control the transaction, and in whose interests.

      • Mike Hall
        July 25, 2015 at 10:36 am

        Oh, and Patrick Chalmers’ book is:

        Fraudcast News : How Bad Journalism Supports Our Bogus Democracies


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