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New Greek bailout increases the odds that Grexit will actually happen, despite Washington’s pressure.

August 2, 2015 3 comments

from Mark Weisbrot

It is now clear that the European authorities do not intend to let the Greek economy recover any time in the foreseeable future. The primary surpluses that the government has been forced to agree to—2, 3, and 3.5 percent of GDP for the three years of the deal, 2016 through 2018—will not allow Greece to escape its depression, which is now in its sixth year.  Even if they miss these targets, which is likely, just trying to do what they have committed to will keep the economy from recovering.

The Foundation for Economic and Industrial Research in Athens has projected that the Greek economy will not recover in 2016.  It is worth noting that since 2010 past projections from official sources, e.g., by the IMF, have almost always projected recovery for the following year – even though it never happened until the tiny, short-lived, recovery of 2014.

One can only speculate on the motives for inflicting this harm on the people of Greece. Clearly it is not about the money – the Financial Times estimated that the primary surpluses will contribute about 4.5 billion euros out of what is now an 86 billion euro package. Punishment is probably part of the motivation for these hateful conditions, as well as a fear on the part of the tormentors that “leniency” could encourage people in other vulnerable eurozone economies to vote for left parties or demand an earlier exit from mass unemployment.   Read more…

European authorities refuse to let Greek economy recover, making eventual Grexit more likely

July 19, 2015 3 comments

from Mark Weisbrot

The battle over the future of Europe – currently centered in Greece – is far from over. But, with the tentative deal that has been struck between the Syriza government and European authorities, it has certainly entered a new phase.

Prior to the July 5 referendum, European officials had been carrying out a strategy of “regime change.” Deadlines came and went, and threats of a forced Grexit were mainly bluff, despite the fact that the most powerful leader of the eurogroup of finance ministers, Germany’s Wolfgang Schäuble, seemed to favor it. The strategy of regime change looked relatively easy: the European Central Bank (ECB), by restricting credit, together with the standoff and rumors of Grexit, had already pushed the Greek economy back into recession. It seemed only a matter of time before the economic failure, combined with anti-Syriza media coverage, would undermine support for the Greek government enough to usher in a new one.

In his first interview since his July 6 resignation from the post of Greek finance minister, Yanis Varoufakis describes “The complete lack of any democratic scruples, on behalf of the supposed defenders of Europe’s democracy,” i.e., his eurozone negotiating partners. They continuously “delayed and then came up with the kind of proposal you present to another side when you don’t want an agreement.”  Read more…

Germany is bluffing on Greece

June 12, 2015 8 comments

from Mark Weisbrot

You can ignore all the talk of a “Grexit,” the bluff and bluster of right-wing German ideologues such as Finance Minister Wolfgang Schäuble who would celebrate it, and repetitive, stubbornly dire warnings that time is running out. Did you notice that the much-hyped June 5 deadline for the Greece’s payment to the International Monetary Fund (IMF) came and went, Greece didn’t pay and nobody fell off a cliff? Trust me, this is not a cliffhanger.

Although there have been numerous references to game theory in the ongoing commentary, it’s really not necessary if you look at the revealed preferences of those whom the Syriza government is polite and diplomatic enough to call its European partners. Take partner-in-chief German Chancellor Angela Merkel: If there’s one thing she doesn’t want to be remembered as, it’s the politician who destroyed the eurozone. Read more…

Are the European authorities destroying the Greek economy in order to “save” it?

March 31, 2015 5 comments

from Mark Weisbrot

There is a tense standoff right now between the Greek government and the European authorities – sometimes known as the Troika because it includes the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF). ECB President Mario Draghi denied this week that his institution is trying to blackmail the Greek government.

But blackmail is actually an understatement of what the ECB and its European partners are doing to Greece. It has become increasingly clear that they are trying to harm the Greek economy in order to increase pressure on the new Greek government to agree to their demands.  Read more…

The buck stops here – Greece is fighting to save Europe

February 27, 2015 5 comments

from Mark Weisbrot

Greece has been dragged through a lot of mud in the media over the past few years because previous governments overborrowed, and that contributed to the initial crisis that – we should remember – Spain, Portugal, Italy and almost everyone else in the eurozone had to go through. But the initial crisis could have been resolved relatively quickly. In the United States, which was hit by the explosion of an $8 trillion housing bubble, our recession lasted just 18 months. In Greece it has been six years, with a loss of a quarter of its national income, and more than 25 percent unemployment (and twice that for youth).

By now it is clear not only to the majority of economists, but to most people who are paying attention that this long depression was not only unnecessary but caused directly by bad policies.  Read more…

Greece: ECB kicks Syriza in the face; Syriza turns the other cheek

February 7, 2015 7 comments

from Mark Weisbrot

On Wednesday the European Central Bank (ECB) announced that it would no longer accept Greek government bonds and government-guaranteed debt as collateral. Although Greece would still be eligible for other, emergency lending from the Central Bank, the immediate effect of the announcement was to raise Greek borrowing costs and squeeze its banks, and to increase financial market instability within Greece.

We should be clear about what this means.  The ECB’s move was completely unnecessary, and it was done some weeks before any decision had to be made.  It looks very much like a deliberate attempt to undermine the new government.  They are trying to force the government to abandon its promises to the Greek electorate, and to follow the IMF program that its predecessors signed on to. Read more…

Syriza’s win is the beginning of the end for the Eurozone’s long nightmare

February 6, 2015 13 comments

from Mark Weisbrot

Everyone seems to agree that Syriza’s big victory in Greece is a milestone for Europe, which has been plagued by mass unemployment and a failure to really recover from the financial crisis and world recession of 2008-09.  But what kind of a milestone will it be? We can get some ideas from focusing on a few key issues, especially economic policy, which remain surrounded by much confusion in the public debate.

Alexis Tsipras himself, the charismatic 40-year old leader of Syriza who has become the country’s youngest prime minister in 150 years, declared on Sunday that “Democracy will return to Greece.” This was mostly overlooked as mere political rhetoric, but it was actually a concise political statement that goes to the core of not only Greece’s but the eurozone’s main problem. All we need to do is compare the recovery of the United States – which was the epicenter of the earthquake that shook the world economy in 2008 and 2009 – and that of Europe, to see what a difference democracy makes. Read more…

Fed shouldn’t be raising interest rates any time soon

December 10, 2014 2 comments

from Mark Weisbrot

A lot has changed in the last 20 years since then-Federal Reserve Vice-Chairman Alan Blinder had the audacity to suggest, in a speech, that the Fed could use interest-rate policy to help reduce unemployment in the short term. It was real blasphemy back then, and despite the fact that the Fed had by law a dual mandate to maintain both “price stability” and full employment, his remarks ignited a firestorm of controversy.

Now, thanks to the Great Recession, and Ben Bernanke’s willingness to use zero interest rates and venture into uncharted territory with quantitative easing, the “dual mandate” is widely accepted.  Both Bernanke and current Fed Chair Janet Yellen also spoke out in favor using fiscal policy (i.e. deficit spending) to increase employment, something that U.S. Fed chairs didn’t say in the past.  In a recent speech, Yellen noted that “the lack of fiscal support for demand in recent years also helps account for the weakness of this recovery compared with past recoveries.”

These are important institutional advances, even if other branches of government – most importantly the Congress – are not smart enough to take advantage of free money to create some of the millions of jobs that are so desperately needed. But today’s Fed could still be a threat to full employment if it proceeds too early with the “normalization” of interest rates that even Ms. Yellen is talking about.  And everyone is talking about some time next year, and that is too early. Read more…

How to fix Venezuela’s troubled exchange rate

July 24, 2014 1 comment

from Mark Weisbrot

Most people think that the Venezuelan economy is a basket case on the verge of collapse, and that has been a widespread belief for most of the last decade. But the South American nation has only run into serious trouble in the past two years. Starting in 2004, after the government wrested control from its political opposition over the all-important oil industry, the economy performed quite well through 2012. It grew at an annual rate of 4.8%, and the poverty rate fell by half.

During the past two years, however, a number of problems worsened. Inflation has hit annual rates of more than 60%, and the country has faced an increasing shortage of essential consumer goods like milk and toilet paper. The black market price of the dollar also soared.

Earlier this month, the government announced that it would try to resolve these imbalances by creating a single, unified exchange rate system. Venezuela currently has four different exchange rates. Most dollars are bought from the government at the official rate of 6.3 bolivares fuertes per U.S. Dollar. These are intended for essential goods, such as food and medicine. Some other importers can buy dollars from the government at a rate of about 11 bolivares per dollar on a limited exchange called SICAD 1. There is also SICAD 2, which was introduced in March and involves private sellers, at a rate of 50 Bf. per dollar. Finally, there is the black market, which is unregulated, where dollars currently sell for about 79 Bf. per dollar.  Read more…

BRICS’ new financial institutions could break a long-standing and harmful monopoly

from Mark Weisbrot

Back in 1998, when middle-income Asian countries were hard hit by big capital outflows, there was an effort – joined by China, Japan, Taiwan and other countries—to put together an Asian Monetary Fund to offer balance of payments support.  Washington vetoed the idea, insisting that all assistance had to go through the IMF.  The result was a mess, including an unnecessarily deep regional recession, as the IMF failed to act as a lender of last resort, and then attached all kinds of harmful and unnecessary conditions to its lending.

But the world has changed a lot in the past 15 years.  Last week the BRICS countries (Brazil, Russia, China, India, and South Africa) decided to form the Contingent Reserve Arrangement (CRA) and the New Development Bank (NDB), and the United States will not have a veto this time.  These new institutions have the potential to become a game changer for the world economy.

The western media coverage of these events has been mostly dismissive, but that primarily reflects the concerns of Washington and its allies.  They have had unchallenged sway over the decision-making institutions of global financial governance for 70 years, and the last thing they want to see is competition.  But competition is exactly what the world needs here.  Read more…

China has good reason to help stabilize Latin American economies

February 3, 2014 4 comments

from Mark Weisbrot

In the last week or so much of the international business press has been focused on the problems of financial stability in developing countries, some of whom have recently become more vulnerable to capital outflows.  The main cause is that investors are trying to get the jump on possible moves by the U.S. Federal Reserve to allow U.S. interest rates to rise, which will draw capital from developing countries and cause their borrowing costs to rise.

Argentina has gotten some of this attention, as it allowed the peso to fall by 15 percent in one day and increased some access for Argentines to dollars on the official market.  Venezuela is not so much affected by these market developments, but is always negatively portrayed in the international media, and more so in the last year since its exchange rate system problems have caused its inflation to rise to an annual rate of 56 percent over the past year.

The two countries face different sets of problems, but they will both likely have to stabilize their exchange rates in order to resolve them.  This is where international help can make a big difference, and there is one country that has both the ability to help and a compelling interest in doing so:  China.  Read more…

Economic and social policy and the problems of the Eurozone and European integration

January 30, 2014 Leave a comment

Mark Weisbrot

The latest (February) issue of Harpers’ Magazine has an interesting discussion of Europe and the eurozone, “How Germany Reconquered Europe: the Euro and its Discontents.” Some of the big questions of European unity, democracy, and national sovereignty are debated in broad and direct terms not often seen in other analyses:

“The basic lesson of the past ten, twenty years – even of the past hundred years – is that the upper limit, not only of democracy but of political legitimacy, is the nation-state…” (John N. Gray, London School of Economics.)

Then there is the Franco-German relationship, which is central to the eurozone:  Read more…

Five economic policy changes for 2014 that could boost employment and reduce climate disruption

January 27, 2014 5 comments

from Mark Weisbrot

The U.S. economy is still weak, with 7 percent unemployment, many millions more underemployed and less people employed in November than there were six years ago. At the same time – and not unrelated – we are still devolving along a path toward increasingly ugly inequality, with 95 percent of the income gains since the Great Recession going to the top 1 percent of the income distribution.

Meanwhile, the crisis of global climate change is moving toward more irreversible catastrophic damage each year that the United States, which is responsible for more of the cumulative carbon emissions than any other country, procrastinates in making the necessary changes to reduce fossil fuel consumption.

There are feasible policy changes that can address all of these problems – and we don’t have to sacrifice employment or a more just and decent society in order to make progress on climate change. Here are five of them: Read more…

Greece will likely begin recovery this year: Is austerity working?

January 23, 2014 2 comments

from Mark Weisbrot

It was nearly four years ago that the Greek government negotiated its agreement with the IMF for a harsh austerity program that was ostensibly designed to resolve its budget problems.  Many economists, when we saw the plan, knew immediately that Greece was beginning a long journey into darkness that would last for many years.  This was not because the Greek government had lived beyond its means or lied about its fiscal deficit.  These things could have been corrected without going through six or more years of recession.  It was because of the “solution” itself.

Four years later, Greece is down about a quarter of its pre-recession national income – one of the worst outcomes of a financial crisis in the past century, comparable to the worst downturn of the United States’ Great Depression.  Unemployment has passed [PDF] 27 percent and more than 58 percent for youth (under 25).  There are fewer Greeks employed than there have been at any time in the past 33 years.  And real public health care spending has been cut [PDF] by more than 40 percent, at a time when people have needed the public health system more than ever.

The IMF is the subordinate partner in the “troika” (including the European Central Bank and the European Commission) that has been calling the shots for the Greek economy these past four years, but it is the one in charge of putting numbers on the page.  It repeatedly projected economic recoveries for 2011, 2012, and 2013 that did not materialize.

Now the IMF is projecting economic growth for 2014.  But this time they are probably, finally, going to be right.  It is vitally important that we understand why.  Read more…

Twenty years since NAFTA: Mexico could have done worse, but it’s not clear how

January 7, 2014 3 comments

from Mark Weisbrot

It was 20 years ago that the North American Free Trade Agreement (NAFTA) between the U.S., Canada, and Mexico was implemented. Here in Washington, D.C., the date coincided with an outbreak of the bacteria cryptosporidium in the city’s water supply, with residents having to boil their water before drinking it. The joke in town was, “See what happens, NAFTA takes effect and you can’t drink the water here.”

Our neglected infrastructure aside, it is easy to see that NAFTA was a bad deal [PDF] for most Americans. The promised trade surpluses with Mexico turned out to be deficits, some hundreds of thousands of jobs were lost, and there was downward pressure on U.S. wages – which was, after all, the purpose of the agreement. This was not like the European Union’s (pre-eurozone) economic integration, which allocated hundreds of billions of dollars of development aid to the poorer countries of Europe so as to pull their living standards up toward the average. The idea was to push U.S. wages downward, toward Mexico’s, and to create new rights for corporations within the trade area: these lucky multinational enterprises could now sue governments directly before a corporate-friendly international tribunal, unaccountable to any national judicial system, for regulations (e.g. environmental) that infringed upon their profit-making potential.

But what about Mexico? Read more…

With debt ceiling lifted, will America move to non-fiction on economic issues?

October 22, 2013 3 comments

from Mark Weisbrot

The rest of the world must have been fascinated at the spectacle of the U.S. government shutdown and threatened default on our public debt.  Here is a country that not only has no public debt problem, but can pay any foreign creditors in its own currency – i.e. money that our central bank creates.  Yet even this “exorbitant privilege” – as Barry Eichengreen titled his book about the dollar at the center of the international financial system – was not enough to assure the world that Republicans would not cause disruption by attempting the impossible.

As expected, the Republicans were defeated and got nothing for their efforts other than a record-low approval rating.  The New Yorker’s satirist Andy Borowitz summed up their “noble cause” with a fictional quote from Ted Cruz:  “The dream of keeping poor people from seeing a doctor must never die.”

The outcome was never much in doubt. The Tea Party and its friends do not control the majority of the Congress, nor could anyone expect House majority leader John Boehner to defy the Chamber of Commerce, the Business Roundtable, and the rest of America’s most powerful business lobbies after they made it clear that they would not stomach even a temporary, technical default on U.S. Treasury obligations. Indeed, it is testimony to the extremists’ base of support within their party – and their own stubbornness – that they made it as far as they did.  Read more…

European authorities still punishing Greece – Can they be stopped?

February 5, 2013 2 comments

from Mark Weisbrot

Alexis Tsipras has a tough job.  He is leader of the Syriza Party of Greece, a left party that has risen meteorically in the past three years: from 4.6 percent of the vote in 2009 to 27 percent last June.  It is now the most popular party in the country and Tsipras could be the next Prime Minister.

Unlike most of the eurozone’s leaders, he knows what is wrong with Greece and the eurozone, and so does his party: austerity.  “We have become the guinea pig for barbaric, violent neoliberal policies,” Read more…

Japan’s fiscal stimulus: yes, there is such a thing as a free lunch

January 23, 2013 9 comments

from Mark Weisbrot

Economists like to say there’s no such thing as a free lunch – this was even the title of a 1975 book by Milton Friedman. But sometimes there is a free lunch – in a vitally important sense – and now is one of those times for a lot of countries suffering from unnecessary unemployment and in some cases, recession.

Adam Posen doesn’t want to recognize that this is the case for Japan at present. Posen is president of the Peterson Institute for International Economics, which is probably Washington’s most influential think tank on international economics. Posen is not an “austerian” economist – in the second half of the 1990s he supported expansionary fiscal policy in Japan; and more recently, as a member of the Bank of England’s Monetary Policy Committee from 2009-2012, he supported expansionary monetary policy, including quantitative easing and very low interest rates.   Read more…

Five things we can do to help fix the US economy in 2013

January 10, 2013 3 comments

from Mark Weisbrot

For much of America, it still feels like we are in a recession. We have recession levels of unemployment, with the headline rate at 7.7 percent; 14.4 percent if we count the underemployed and those who have given up hope.

Here are five things we can do to get the economy back on track in 2013:

  1. Federal revenue for the states: State governments need money so that they can increase employment, which has been hit very hard since the beginning of the Great Recession. We have lost teachers, firefighters, and many other workers whose absence compromises or endangers our future. Since February of 2009 the number of state and local government employees has shrunk by more than 600,000, plus an equal or greater amount that would normally have been added.
    For those who worry that the federal government is too indebted, don’t believe the hype. The most important measure of our public debt burden is the net interest paid by the government on the debt. That is currently less than 1 percent of our national income, lower than it has been in the post-World-War II era.  Read more…

Employment – not deficit reduction – should be the first priority for federal government

November 19, 2012 3 comments

from Mark Weisbrot

As the much-hyped “fiscal cliff” looms at the end of the year, there is talk about “comprehensive tax reform” as part of a deal to achieve deficit reduction. For Republicans and their allies who want to minimize the taxes paid by rich people, this is one strategy: keep tax rates on rich people at historic lows (or even lower them) while supposedly closing some loopholes. These loopholes may or may not be closed, or the changes may collect more revenue from people who are not in the top 1 or 2 percent, whom they want to protect.

But the whole debate misses the boat in so many ways that it is hard to list them all in this space. Read more…

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