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Rewriting Greek economic history – the right way (and the ‘Jan Strupczewski’ way)

July 18, 2015 1 comment

The economic slump in Greece is even deeper than we thought and austerity played and even larger role in causing this slump. than we assumed, up to now. At least, according to two new serious studies by Elstat, one containing revised trade data and the other containing data on spending on health.

* The trade data show that the goods trade deficit (not the same thing as the current account!) was between 2006 and 2010 even larger than estimated up till now. Which means that (A) the macro economic capital inflow imbalance was even larger while (B) the spending bust after 2010 had even larger consequences than hitherto estimated (as the deficit dwindled even faster, thanks to an unprecedented decline in domestic demand).

* The health data show that health expenditures declined from about 9 to about 8% of GDP while the old data showed that the share of health expenditure was more or less stable at 9 % of GDP (mind that GDP declined with 25%). This means that (largely government financed) health expenditure declined even faster than we thought which i.e. contributed more to the slump.

Taken together, means that austerity was even more brutal than we thought. Economic history is, to quite an extent, ‘bean counting’. And counting more beans or counting them in a more precise way sometimes changes our view of the past. Which is what Elstat did. This contrary to the endeavours of mr. Jan Strupczewski, Read more…

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Stop the frenzy, please. It’s just about rolling over the debt…

July 15, 2015 2 comments

Greece did not need money to pay pensions. Greece needed money to… roll over its debts and to pay interest. Yawn. And the whole third bail out package is tailored to exactly this: swapping one kind of financial asset for another (tabel) (and oh, banks will receive another 25 billion of free money). The present situation in which the Greek bank system is closed and the creditors do all they can to destroy the Greek economy (again: tripling tourism VAT is a very, very bad idea) might however mean that Greece won’t be able to pay pensions or whatever, too. What Greece needs is, of course, a return to nominal growth ASAP. Graph 1 and 2 show that, in 2014, Greek debts actually declined a little but despite growth of the real economy, debts as a % of GDP increased because of price deflation. Mind that the largest increases of government debt in table 2 are caused by government transfers to banks – with the blessings of Brussels. Save the banks, screw the vulnerable. Last post for some weeks. somewhere in the Vosges, in France, I’ll occupy myself with family matters, cycling and sixteenth century Frisian farmers who were already lending and borrowing quite a lot – without banks (the ledgers with all these data are nowadays, transcribed, on the internet!). But aside from a pawn shop ran by an orphanage in Leeuwarden real banks in Friesland were, despite all this lending and borrowing, only a nineteenth century invention – which leads to the Coasian question: why do banks exist. Clearly not (just) to facilitate lending and borrowing…  Read more…

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Are official statistics one of Greece’s best friends (wonkish)?

Are dependable statistics one of Greece’s best friends? But are the Greek at the same time messing up the independence of Elstat, the Greek statistical office, as indicated by the recent ‘Diktat’? For those who care to look, statistics always convey a meta message. Recently, the German Statistisches Bundesamt published, based upon Eurostat data, a graph showing prices of hotels in the different countries of the EU. This is, of course, not a coincidence. At the same time people in Brussels were trying to quadruple Greece tourism VAT from 6,5 to 23% which, as the German graph clearly shows, would wipe out any kind of price competitiveness gained by the brutal Greek wage cuts. The Bundesamt is fully entitled to, next to their scheduled publications, publish any statistics as they see fit, according to UN treaties. And to criticize Merkel or Schauble, if they misuse official statistics (or me, of course, when I state that publication of the hotel prices is a subtle political statement). Also, official Greek and Eurozone statistics do map the unprecedented depth and length of the Greek crisis or the (for a western country) unprecedented level of unemployment and the tens of billions given away by the Greek government to the Greek banks. One of the elements in the European deal with Greece ‘Diktat’ (German, ‘Befehl‘) from Brussels is however the safeguarding independence of Elstat, the Greek statistical office. What is the matter? Among other things, the present Greek chief statistician has been prosecuted for recalculating and overstating (!) the budget deficit during the Karamanlis years…The situation is according to the European Statistical Governance Assistance Board (ESGAB), March 24 2015, not caused by the Syriza government: Read more…

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Employment in selected Eurozone countries. No austerity or neoliberal miracles

July 13, 2015 7 comments

In case you missed it: Greece has to accept all the measures, which will increase unemployment to at least 30% and possibly 35%, lead to unprecedented amounts of dirt poor old people while 50 billion worth of assets is stacked away in a fund which is mainly meant to recapitalize the banks (surprise!) to be able to negotiate about a deal. This is not yet the deal itself (personal: as I see it there is literally a sadistic element to these measures). Mind that Greece knows next to no unemployment benefits while the number of elderly is rising rapidly. Austerity is of course supposed, by some, to be some kind of miracle cure. But is it? No. None of the Eurozone austerity countries did well, when we look at employment. And neither did Denmark or the Netherlands which before 2008 did everything right, aqccording to the neoliberal rulebook. Private debt fuelled growth, government surpluses, flexible labour markets etc. etc.  At this moment, the Netherlands even have something like a 13% of GDP surplus on the current account (Q1, 2015). Despite this employment growth disappointed….  Read more…

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Sunday evening links

In January during the ASSA conference William Waller held a speech titled:”Policy in an area of unreason’. Remarks upon receiving the Veblen commons award‘. Recommended.

And the dying European project reminded me of this:

Jessye Morgan sings Erlkönig (Goethe-Schubert) Read more…

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Der Schauble-Schrecken schleicht durch die Eurozone… (Schauble-horror creeps through Eurozone)

July 11, 2015 9 comments

I’m increasingly lost about the whole Euro/Grexit/European Union project.

  • How could something which is basically about something as basic as rolling over debts get so out of hand?
  • Why do the Greek want to keep the Euro so badly?
  • And why are politicians like Schauble and Guy Verhofstadt (who according to this blogpost has quite some ties with banks like Eurobank in Switzerland, owned by Spiros Latsis, the richest man in Greece) so hysterical about Greece?

The first two questions leave me at odds. The third seems to be answerable. It is the oldest trick in the book. Create a common enemy to be able to gain power and lead the Eurozone to your destination. And according to Varoufakis, it might indeed be something which could be called the ‘Schauble-Schrecken': “Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.”. Though Verhofstadt, who did not even understood that Greece reformed more than any other country, might just serve the needs of the richest man in Greece.  Read more…

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Will the Greek GDP decline soon set a new world record?

July 7, 2015 4 comments

The foundation of the design of the Euro system is the idea of ‘financial discipline’. Democratic governments, according to this idea irresponsible by nature, had to be reigned in by rational private lenders active on a newly created international capital market (no, not just the banks, also and often more important our pension funds). Part of this design was a decline of international financial transfers in the EU while a central fiscal authority was absent, too. Again: by design! Financial markets had to do the job, away with these democratic governments!

Something unexpected happened, however. Up to 2008 governments were not reigned in by the FIRE sector, as interest rates in the periphery of the Euro Area declined much more than anticipated by economists while the private sector could, until 2008, borrow at lib and often became severely indebted. Which meant that after the Lehman moment, which made capital flows reverse, governments and the ECB somehow had to step in. The way this happened led in Greece to one of the largest peacetime declines in GDP in developed countries ever (graph).

Declines2

Graph slightly adapted from: source. Hat tip: Jesse Frederik.

Read more…

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In Greece, NO is the answer

July 5, 2015 29 comments

I guess I have to speak out – not as and advise to the Greek but because it’s too easy to easy and comfortable to stay silent.

NO is the answer.

In the end, it is a question of trust. And I do not trust you, mister Dijsselbloem:

A) Proposing a quadrupling of VAT rates in (large parts of) the main economic and export sector of a country (tourism) in a deeply depressed country is the dumbest micro and macro economic idea of the year. Even taxing deposits is a better idea.

B) Willfully letting a deal explode over a little bit of money which is used to top up income of the poorest pensioners (who increasingly need this money as their health is deteriorating) is the dumbest social idea of the year and shows the explicit cruel intent of the Institutions (hey, mister Dijsselbloem, didn’t mister Drees, your proverbial prudent and teetotaler social democratic predecessor, in 1953 sign the debt relief program for Germany while he also introduced state pensions, especially for the poorest in Dutch society, in 1956, albeit with the caveat that the pension age might have to be raised in the future?). A higher profit tax or a land tax on privatized harbours or whatever are much better ideas.

C) Wasting the once in a generation chance to, together with Syriza, crush corruption and instead sucking up to Schauble will be on your record for ever. Nothing was a better idea.

NO won’t solve the Greek economic and social problems. I’m not aware of any plan B, the banks will stay closed, emergency money will have to be issued and the economy is already nosediving. To me, it’s all incomprehensible, even after reading interfluidity about the stupidity of this all and this zerohedge post about the super seniority of IMF debts (will the ECB have to tolerate a haircut on Greek debts when Greece defaults on IMF debts…?) about it and taking account of the fact that Malta, Cyprus, Italy, Spain and Portugal of course love to see much higher VAT rates in the competitive Greek tourist industry. Greece already had the worst economic crisis of any rich world economy post 1945 – and it is becoming much worse. Because we make it so. Whatever the answer. A YES will reopen the banks – but Schauble will not like that and he will continue to burn Greece – you can trust that guy!

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Lose-lose, in Greece

July 3, 2015 3 comments

curracc

Creditors might have burned something like 40 to 60 billion Euro of their wealth by “maintaining ELA (Emergency Liquidity Assistance) to Greek banks at the current level”. Greek banks need ELA to be able to buy Euronotes to put in the ATP machines and to enable Greek to wire money abroad. Greek are not able to do anymore, or only to a very limited extent and turning off the ELA tap has sent the Greek economy into a downspin. Again. GDP might decline with another 5 to 10% (even when we reopen the ELA tap today), the grey and black economy will increase, taxes will dwindle and unemployment might top 30 or even 35%. While, using the creditor logic, Greece did not do worse than other indebted countries (graph). To he contrary. As I see it, Greece has become a failed state already Read more…

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GDP in emerging Europe. Worse than you think.

July 1, 2015 3 comments

After 2008, GDP growth in almost all Eastern European countries disappointed. Greece is in a class of its own, Poland and Slovakia did well (graph).

Poland

Between 2007 and 2014, economies like those of China and India were spurting ahead – but in countries like Lithuania and Romania production was barely at the 2008 level while in countries like Latvia, Croatia and Slovenia (austerity darlings, by the way) it was below the post crisis peak… Not all growth is good – but Read more…

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Breaking: ECB states that Euro is reversible and not irrevocable

June 30, 2015 13 comments

Why all tis attention for Greece and not for Croatia or Slovenia? Because Greece is where the main battle is fought. But on this blog more attention will be paid to other countries. Anyway: a Greek referendum about the euro is a very good idea – but this might be the worst time to hold one. You can do this when you still have a lot of cash somewhere. Or when you’re already in default. But announcing a referendum when you’re on ELA – it’s not a good idea. Surely when the creditors have one overriding goal: they want you out of government. And they play to win. Which means that you have to kill them. Or lose. Inflicting a wound and crippling them (which surely happened) is not enough.

Some links:

A) Breaking (and I can’t stress enough how important this is): the wound is really deep, as the ECB changed its mind in a fundamental way. Up till now the ECB has been adamant. THE EURO IS IRREVERSIBLE, adopting it is irrevocable. But they changed their mind (and historians of course knew better all the time). Yesterday, an interview with Benoît Cœuré, one of the highest ranking civil servants of the ECB, started with this sentence: La sortie de la Grèce de la zone euro, qui était un objet théorique, ne peut malheureusement plus être exclue. Translation: Grexit can’t be excluded, anymore. Read more…

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Greece will have to leave the Euro and tax liquid wealth, not spending and income.

June 28, 2015 3 comments

Update: Yannis Varoufakis about the Syriza mandate (and Grexit is not a legal option). Too bad that Jeroen Dijsselbloem doesn’t even try to be his intellectual opponent.

Mario Draghi, president of the European Central Bank and a natural born winner, lost.

It is a bitter loss.The Euro project as it was supposed to be is in tatters. The Euro turns out to be reversible. Since the introduction of the Euro macro economic volatility in the Eurozone increased, growth declined, unemployment reached levels not seen for seventy years and banks have still not been properly regulated. Also, Eurozone wide income transfers (pensions, unemployment benefits, deposit guarantees), which are needed for social reasons as well as to stabilize the Euro and the economy, are a more distant dream than ever. Reckless private money creation of the Irish/Dutch/Baltic type still can happen anywhere at any moment. And grotesque imbalances persist: the Dutch current account surplus is, at the moment of writing, supposed to be 13% of GDP. or 21 billion Euro in the first quarter of 2015.The Euro was designed to decrease national differences and to curtail governments by invoking market discipline. The opposite happened (but democracy was curtailed). Read all about it: Wynne Godley, in 1992 (!):

I am driven to the conclusion that such a view – that economies are self-righting organisms which never under any circumstances need management at all – did indeed determine the way in which the Maastricht Treaty was framed. It is a crude and extreme version of the view which for some time now has constituted Europe’s conventional wisdom (though not that of the US or Japan) that governments are unable, and therefore should not try, to achieve any of the traditional goals of economic policy, such as growth and full employment. All that can legitimately be done, according to this view, is to control the money supply and balance the budget. It took a group largely composed of bankers (the Delors Committee) to reach the conclusion that an independent central bank was the only supra-national institution necessary to run an integrated, supra-national Europe. Read more…

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Should central banks target stable prices or stable incomes?

June 26, 2015 7 comments

On Voxeu Arvind Subramanian, India’s chief economic advisor, argues that: “for monetary transmission to work, both consumer prices and producer prices are relevant, but for different sets of agents.” while consumer prices show, in India, a much higher increase than producer prices.”. Which means that the central bank should not just look at consumer price inflation but also at producer price inflation. In the June issue of The Journal of Economic Issues I stress a similar point in “Metrics Meta About a Meta Metric: The Consumer Price Level as a Flawed Target for Central Bank Policy”, though going one step further (fifty free downloads here). From the abstract:

Inflation targeting is currently the policy of choice for central banks. This policy invariably targets consumer price inflation, which is only one of many available price level indices (such as prices of new investments and house prices). As there is no stable relationship between these price levels, and as differences in developments between the different price levels might induce destabilizing behavior, there is no reason why “low and stable” consumer price inflation should guarantee monetary and financial stability. Following John Maynard Keynes, a “low and stable” increase of average nominal wages might do a better job. As price levels are designed to estimate the purchasing power of spending power and as income, and spending power are used to not just consume or invest but also to pay down many kinds of (gross) debt, it is advisable to use a joint definition of monetary and financial stability, which combines stable purchasing power of monetary income with a stable ability of households and companies to pay off debts.

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Jens Weidmann, boss of the Bundesbank, wants the opposite of debt relief for Greece. Really.

Jens Weidmann, boss of the Bundesbank, wants to restrict the power of the Greek central bank to provide Emergency Liquidity Assitance (ELA) to the Greek banks as he is afraid that Greek banks will use these reserves to purchase short-term government debt (at this moment total assistance is about 89 billion). Sigh. Greek banks indeed own some short-term government  debt. But the Greek government was, as late as april 2015, in fact still funding the banks too, with as much as 9 billion euro (graph 1). Which comes on top of the tens of billions of income transfers from the Greek government to the Greek banks. And the Greek banks do not need ELA to purchase government debt but to be able to provide the ATP’s with cash (which they have to buy from the central bank) as especially Greek households are exchanging deposit money for cash (between november 2014 and april 2015: about 21 billion, at this moment it might be about 30 billion). This bank run is clearly triggered the lack of credibility of the European Central Bank (look here). Restricting ELA will disable households to take their money out of the banks and will therewith cause a large problem for Greek households in case of Grexit, when deposit money will be redominated (unlike Euronotes). It’s hard to believe that Weidmann does not understand this (though I’m not too impressed with his accounting skills, to put it mildly). Which means that he is trying to engineer a severe, unnecessary and cruel haircut of Greek deposits – the opposite of debt relief. First, you trigger a bank run, than you disable people to take their money out of the bank – while the very bankrun you engineered increased the risk that this bankmoney will loose value….

Deposits1
, Read more…

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Links. Reviving cities, declining international trade, the accounting side of Grexit and the trouble with credit rating agencies.

June 24, 2015 2 comments

Remco Schrijvers about the accounting side of Grexit (ELA is created by the bank of Greece and not a Greek liability to the Eurosystem…). Draft!

Henri de Groot e.a. on Voxeu about the revival of cities (and Henry George)

Why have cities emerged as hubs of economic activity in this era in which the internet seems to be the ‘cul-de-sac’ of physical distance? .. Several authors point in the same direction, namely spill-overs and the agglomeration of human capital. Gennaioli et al. (2014) show how within countries, human capital clusters in a small number of regions. The premium in regional GDP per capita is 20% and more per year increase of the mean education level in a region. This return is far above any reasonable estimate of the private return to human capital. Desmet and Rossi-Hansberg (2008) focus on the role of general purpose technologies. In the 1920s and 1930s, that was electricity. Since 1990 it is information technology….Knowledge spill-overs imply that cities are a focal point of location-driven externalities. Land rents are the expression of these externalities. A location’s rent is high not because of the characteristics of the location itself, but because of what happens at locations in their direct proximity. This is a clear example of an externality, the value of your property depends on the actions taking by the owners of neighbouring property. These externalities provide a textbook argument for developing public policy at the level of the city and why a Henry George tax on the value of land is most efficient.

Clemens Jobst and Stefano Ugolini argue that Central Banks should, when buying financial assets, not rely on collateral and credit ratings of credit rating agencies Read more…

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The Syriza proposal. A surrender?

The Syriza proposal to The Institutions has been published by Ekhatimerini. Some quick remarks (from the top of my head, I did not check):

Main points:

A) The Institutions could have seized the opportunity to combat corruption and rent seeking behaviour by oligarchs and banksters (some tax exemptions are supposedly enshrined in the Greek constitution…) but they did not put pressure Syriza to do what Syriza wanted to do and clearly wasted the opportunity.

B) The financial proposals are not sound as they are ‘parameteric’, i.e. as they do not take all kind of macro (and micro!) economic consequences into account.

C) As B) was the most important (and totally right) criticism of Syriza of existing measures this means that the proposals indeed surrenders (but see below). FYI: the macro economic failure of earlier programs is clearly shown by the extremely large difference between the calculated and the (much larger) real consequences of austerity. The micro economic insufficiency is clearly shown by the weird insistence of The Instiutions that average, economy wide labour costs are a measure of competitiveness – which leads to the idea that cutting wages of teachers enhances the competitiveness of manufacturing. The lack of macro (and micro!) economic logic of the proposals is a hallmark of all Eurozone austerity programs: so called ‘reforms’ of the labour market and the lack of reform of financial markets consistently both do not have a sound economic basis.

Specific points:

1) Regarding privatisations and tax evasions and a fiscal council the proposals are pretty much the same as earlier proposals from about three months ago.

2) On the labour market there are no real proposals

3) There are some very explicit remarks about banks in the sense that the government has to respect the private management of the banks blablabla and ‘no fiscal policies actions would  be taken that will undermine the solvency of the banks’ (no need to, of course, we can leave that to the bankers themselves. And didn’t the Greek government veryu recently inject about 24 billions of tax payers money into these same banks – but that’s of course not disrespecting ‘private management’). This feels a bit like the Greek government has been forced to write this.

4) There is a remarkable lack of new wealth taxes (a little regarding yachts, but that’s peanuts).

5) Vague but extremely important: “The authorities will further develop and swiftly implement a comprehensive strategy for addressing the issue of non-performing loans”. This is a very important issue which indeed has to be addressed. But Ireland and Cyprus show that The Institutions have a clear idea about such policies: creditors come first and second (in Ireland in fact first, second, third, fourth, fifth, sixth and seventh – there are seven ‘experimental’ stages to squeeze money from creditors before a creditor can default). In combination with point 3 and accepting the idea that point 3 has been forced upon the documents by The Institutions it seems that The Institutions try to impose a very creditor centered system of dealing with non-performing loans on Greece, just like they try to do in Cyprus and Ireland. The Europe of the banks. Somebody seems to have forgotten that ‘bank‘ and ‘bankrupt‘ have the same historical etymology: when a moneylender couldn’t pay he did not get loads of government money but his bench was broken and his licence revoked.

6) The tax increases (VAT) and spending decreases (pensions): complicated. You have to know a lot about the details of the Greek VAT end pension system to be able to make a clear assessment of these proposed measures. With that in mind: as I see it the increase in the pension age is a necessary step which, by the way, is totally consistent with traditional socialist ideas about labour: jobs can and have to be decent and work can be dignified – no reason for early retirement. But such measures are at the moment not urgent from a macro economic point of view, as the unemployment rate is 27%. It might however help people with low pensions as they can work longer. Increasing VAT on the islands (tourist destinations!) is bonkers – tourism is very price sensitive. Increasing other VAT rates is, in a deeply depressed economy, very counterproductive: tax wealth (land?) instead. Increasing (medical) costs for rich pensioners might be fair but considering the fact that most pensioners are poor it’s just another hit to their purchasing power (though generic medicines may become cheaper) it does seem as if the vulnerable are hit. Which is of course the explicit political intention of The Institutions: weaken the core constituency of Syriza!

Aside: The Institutions want countries to install an independent ‘fiscal watchdog’, like the Dutch Centraal Planbureau (CPB) or the USA CBO. Though the Dutch CPB is decreasingly independent, it still takes heed of micro and macro consequences of policy measures. It won’t be long before The Institutions will notice this and start to press for an increasingly legal instead of economic nature of these watchdogs.

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Links. The Institutions edition or: ‘It’s all about resilience’

The Levy Institute. Back in 2008 the Fed did not have a clue about shadow banking (though shadow banks are called ‘banks’ for a reason…), according to Matthew Berg who scrutinized the 2008 minutes of the meetings of the Fed. Aside – in Europe, at least part of securitized mortgages (which were shifted from the balance sheets of the official ‘MFI’ banks to the balance sheets of shadow banks) were even removed from the estimates of money and credit, as they were not visible on the balance sheets of the official banks anymore, which means that monetary statistics underestimated the growth of money and credit in those days. Clueless in Frankfurt.

The Worldwatch institute. About a two months ago it published its ‘flagship’ The state of the world in 2015 report about the interplay between economic and environmental issues. An excerpt:

“The very pillars of contemporary success—among them, high degrees of specialization, complexity, and manifold interconnections—could very well turn out to be humanity’s Achilles heel. Specialization works well only within certain tightly controlled parameters, but it could be useless under changed circumstances. Complexity and interconnections multiply the strengths and advantages of a viable system, but they also make it susceptible to a rapid cascade of destabilizing impacts. Such a highly productive system is actually low on resilience because it focuses on constantly reducing any slack or redundancy—the exact features that allow for resilience to materialize. Author Thomas Homer-Dixon quotes Buzz Holling, a leading Canadian ecologist, who has warned that the longer a system is locked onto a trajectory of unsustainable growth, “the greater its vulnerability and the bigger and more dramatic its collapse will be.” Seen through this broader lens, it is clear that the challenge for humanity today is no longer anything like what it faced in the 1960s and 1970s, when developing pollution abatement technologies and lessening the degree to which resources were wasted provided a more-or-less adequate answer to the most pressing problems of the day. The world now needs to adopt solutions that change the entire system of production and consumption in a fundamental manner, that move societies from conditions of energy and materials surplus to scarcity, and that develop the foresight needed to recognize still-hidden threats to sustainability. This goes far beyond the realm of technical adaptations, and instead requires large-scale social, economic, and political engineering—in an effort to create the foundations for a more sustainable human civilization.”

Read more…

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A roadmap for an undemocratic future for Europe.

June 22, 2015 1 comment

Today, the presidents of five European Institutions presented a “Roadmap for the future of the Economic and Monetary Union“. According to Mario Draghi,

“The report describes how we can move from the current system of coordination by rules to joint decision-making within common institutions … We need a quantum leap in European integration. We need to address the fragilities of our economies; to ensure that divergence will become convergence again; and to safeguard the irreversibility of monetary union. Our report provides the roadmap for this.”

Some remarks:

* The ideas are not new. Look at this post from over three years ago.

* The ideas will lead to the de facto abolishment of independent nation states in the Euro area. A quote from a three year old speech from José Manuel González-Páramo, member of the board of the European Central Bank (emphasis added):

In other words, the euro area is responding to the crisis by creating a new and more comprehensive model of economic governance. This is aimed at preventing imbalances in all policy areas before they can trigger crises – and managing crises more effectively when they do arise. In many ways, this response is sui generis and departs from the template we associate with political federations. For example, the “two pack” gives the Commission the power to demand the kind of reforms that the U.S. federal government could not demand of a U.S. state. Moreover, the federal government would not be able to sanction a state if, for example, its tax code was leading to a local housing bubble. This is now not excluded in the euro area under the Macroeconomic Imbalances Procedure.

Read more…

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War of finance

June 21, 2015 9 comments

From: David Ruccio

Seven years after the global financial crash, we’re still in the midst of a full-scale war of finance.

On one side of the Atlantic, U.S. Court of Claims Judge Thomas Wheeler found that former AIG head Hank Greenberg was indeed correct in claiming the government overstepped its legal boundaries in its “unduly harsh treatment of AIG in comparison to other institutions” that was “misguided and had no legitimate purpose.” The ruling basically confirmed the Fed’s right to create a gigantic bailout of Wall Street but denied its ability to actually determine the use of the funds by the “taking of equity” in essentially worthless financial institutions like AIG.

Finance thus continues to win the war in the United States.

And, as Ambrose Evans-­Pritchard [ht: sw] explains, finance is engaged in all-out war in Europe.

Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world.

The spectacle is astonishing. The European Central Bank, the EMU bail­out fund, and the International Monetary Fund, among others, are lashing out in fury against an elected government that refuses to do what it is told. They entirely duck their own responsibility for five years of policy blunders that have led to this impasse.

They want to see these rebel Klephts hanged from the columns of the Parthenon – or impaled as Ottoman forces preferred, deeming them bandits ­ even if they degrade their own institutions in the process.

The European Central Bank is actively inciting a bank run in Greece and threatening to throw that country out of the euro zone if it resists the demands of the creditors, represented by the troika, without ever seriously considering the proposals put forward by the democratically elected Syriza government.

The truth is that the creditor power structure never even looked at the Greek proposals. They never entertained the possibility of tearing up their own stale, discredited, legalistic, fatuous Troika script.

The decision was made from the outset to demand strict enforcement of the terms agreed in the original Memorandum, which even the last conservative pro­Troika government was unable to implement ­ regardless of whether it makes any sense, or actually increases the chance that Germany and other lenders will recoup their money.

At best, it is bureaucratic inertia, a prime exhibit of why the EU has become unworkable, almost genetically incapable of recognising and correcting its own errors.

At worst, it is nasty, bullying, insistence on ritual capitulation for the sake of it.

The troika, in other words, is acting like a unified debt collector, and is willing to go so far as to threaten to topple a democratically elected government to set an example that, in Greece and elsewhere in Europe, finance is willing to do anything and everything to win the war.

See post on original website

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Graph of the day. Unemployment in the Euro Area periphery – the long run

June 21, 2015 3 comments

Unemployment in Poland is depressingly high. But quite a bit lower than in most other Euro Area periphery countries. Only Romania, Hungary and the Czech Republic (not included in the graph) do better and of these three only the Czech Republic seems to have had a kind of stable development since the middle of the nineties. The other countries did not only see very high levels of unemployment but often also enormous changes in the level of unemployment. In the long run you will be unemployed – again. The Polish and the Czech example however shot that it does not have to be like that. Countries can also pursue policies aimed at stabilizing the flow of spending instead of increasing prices of existing financial and real assets (houses!) by maximizing the stock of private debt. All data Eurostat.

Unemployment

 

 

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