Links. ‘We told you so’. And prosperity. And violence in France
On Voxeu an impressive number of economists are quite alarmed at the political and social fall out of the present situation and argue that the Financial Crisis and the Euro Crisis were not government debt crises: “Importantly, the EZ Crisis should not be thought of as a government debt crisis in its origin – even though it evolved into one. Apart from Greece, the nations that ended up with bailouts were not those with the highest debt-to-GDP ratios. Belgium and Italy sailed into the Crisis with public debts of about 100% of GDP and yet did not end up with Troika programmes; Ireland and Spain, with ratios under 40%, needed bailouts. The real culprits were the large intra-EZ capital flows that emerged in the decade before the Crisis. These imbalances baked problems into the EZ ‘cake’ that would explode in the 2010s. All the nations stricken by the Crisis were running current account deficits. None of those running current account surpluses were hit.
Mario Draghi states that QE is a success as borrowing rates for periphery non financial companies have come down quite a bit (which, though it will not by itself be a solution, is a very good thing). And I had to read this twice: “an increase in core services inflation – today close to an all-time minimum – will depend on rising nominal wage growth.” Mind: Draghi wants inflation to increase to (about) 2%!
Frances Coppola however argues that it is all too little too late. Damage has been done. Minor point: Coppola argues that M-3 money growth was too low, I’m of the opinion that surely in a situation of very low interest rates and a search for safety (i.e. cash) credit is a more important monetary indicator and variable than M-3 money. Credit growth was (and is) too low (credit for investment and to finance trade, not credit for house purchase).
The Bank of England argues that economic models (and especially DSGE models) were of little or no help when crisis struck. In my opinion, this goes at least some way to explain the ‘too little, too late’ of the ECB. Models also including consumer confidence survey results (survey results which are amply used by Draghi!) might do better, according to the BoE. Sigh. The first time I heard that consumer confidence was a better predictor of consumption expenditure than complicated economic models was in 1987, when I worked at the CBS.
Here some price winning pictures about a contest with as a theme economy, ecology and welfare. I like the waterfall picture – remember that leisure is an important aspect of prosperity.
Homeless people in France experience, according to INSEE, high levels of violence. Violence in France