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.

Dominique Strauss Kahn: “to my German friends”

from Yanis Varoufakis

Dominique Strauss Kahn: “to my German friends”

“But the demon that makes us repeat our errors of the past is never far away.”

Hollande stood his ground. Merkel faced up to those who didn’t want an agreement at any price. It’s to their credit. There is a good chance a plan will be put in place, reducing if not removing the risks of a Grexit. It’s not enough, but it’s welcome.

The conditions of the agreement, however, are positively alarming for those who still believe in the future of Europe. What happened last weekend was for me profoundly damaging, if not a deadly blow.

There are of course those who do not believe in that future, who will be rejoicing. And they are many, from two different camps.

Euro — the antithesis of democracy

from Lars Syll

That concern for popular legitimacy is incompatible with the politics of the eurozone, which was never a very democratic project. Most of its members’ governments did not seek their people’s approval to turn over their monetary sovereignty to the ECB. When Sweden’s did, Swedes said no. They understood that unemployment would rise if the country’s monetary policy were set by a central bank that focused single-mindedly on inflation (and also that there would be insufficient attention to financial stability). The economy would suffer, because the economic model underlying the eurozone was predicated on power relationships that disadvantaged workers.

And, sure enough, what we are seeing now, 16 years after the eurozone institutionalised those relationships, is the antithesis of democracy: many European leaders want to see the end of prime minister Alexis Tsipras’ leftist government. After all, it is extremely inconvenient to have in Greece a government that is so opposed to the types of policies that have done so much to increase inequality in so many advanced countries, and that is so committed to curbing the unbridled power of wealth. They seem to believe that they can eventually bring down the Greek government by bullying it into accepting an agreement that contravenes its mandate.  Joseph Stiglitz

Why won’t the Eurozone disintegrate?

from Deniz Kellecioglu

About a year ago, while having coffee with friends in Addis Ababa, I postulated that the Eurozone would break up, probably by May, but certainly by September. Of course, I was not the only one offering such projections. But why did we miss the mark (so far)?

Economically, it does not make much sense to go on with the Euro, especially if we have the general populace at heart. Last Thursday, statistics from Eurostat confirmed that the Eurozone remains in recession. The day before that, millions of people across Europe, but predominantly in the most affected countries Portugal, Spain, Italy and Greece, took to the streets against austerity. As you already know, the unemployment figures are at record heights. 

Manifesto: Econonuestra´s proposal to all people and interested groups to promote the debate on the crisis

Econonuestra

Peripheral countries within a fracturedEurope

1. 1. Promoting social debate

It is more than four years that the crisis began and far from improving, the economic and social situation has further deteriorated.

The political management of the crisis has been limited to a one sided diagnosis of the roots of the problems while the European institutions and the national governments continue to implement a strategy based on massive cutbacks in public spending and investment, pressure on labor costs, and reforms that reduce social rights and privatize areas that had so far been preserved as public goods.

However none of the established goals have experienced significant progress. Cutbacks have led to neither a rapid nor a substantial reduction in budget deficits, whereas efforts to improve the competitiveness by reducing real wages have proved to be both ineffective and insufficient. Far from reducing the public accounts imbalances, the implemented measures have prompted a collapse in domestic demand which, despite a drop in imports thereby reducing temporarily the current-account deficits, have simultaneously led to a decline in economic activity and employment. Such a decline has made impossible balancing the public and external accounts.  

The Euro as the SDR of Europe?

from Steve Keen

The Euro is the national currency of a country that does not exist. Though there is a continent of Europe, as there is of America, there has never been a country of the United States of Europe, and there probably never will be.

The Euro is therefore not a currency as is the American dollar, and yet it is forced to masquerade as one—badly—by the Maastricht Treaty, in which the countries of Europe abandoned the right to produce their own genuine national currencies.

With the volume of the Euro being controlled by a supra-national authority (the ECB), and member states punished for breaching rules on government spending (the 3% maximum deficit and 60% accumulated deficit rules), the Euro is closer in function not to a currency, but to Special Drawing Rights as they were conceived of by Keynes at Bretton Woods. In his plan for a post-WWII international monetary system, Keynes proposed that common supranational currency be used for international trade (the “Bancor“), while domestic currencies should used for internal trade. The exchange rates between national currencies and the Bancor were to be fixed, with persistent trade deficit countries being forced to impose austerity and devalue, while persistent surplus countries were taxed Bancors, and required to stimulate their economies to increase imports.

The Premonitory Five: Godley, Wray, Forstater, Mosler and Bell

from Edward Fullbrook

The neoclassical mainstream won infamy for remaining oblivious of the impending Global Financial Collapse, whereas Keen, Roubini, Baker and Hudson won fame for analytically foreseeing it and giving ample warning.  Now a “policy note” from the Levy Economics Institute documents analytical warnings of the European Union’s current debt crisis given separately a decade or more ago by five economists:  Wynne Godley (1997), L. Randall Wray (1998), Mathew Forstater (1999), Warren Mosler (2001) and Stephanie Bell (2002).  Below are relevant passages from each of the five.  These two huge examples illustrate how economics could serve, rather than dis-serve, society if the profession were to become in the main science-based rather than faith-based. 

Austerity was the big loser in the Greek elections

from Dean Baker

Austerity was the big loser in the Greek elections on Sunday. The two main Greek parties, who endorsed the austerity pact signed last year, together got just over one-third of the vote. This is an extraordinary rebuke given that between them, these parties have governed Greece since the end of the dictatorship in 1976.

On the anti-austerity side, a left-wing coalition came in second with around 17 percent of the vote. More ominously, a far right anti-immigrant party, which is also anti-austerity, received almost 7 percent of the vote.

It is important for people elsewhere in the world, and especially in Europe, to understand that the Greek voters were not just being cranky kids who refuse to take their medicine. There is no doubt that Greece’s government and economy were poorly managed in the years leading up to the crisis.

However the current path of austerity does not offer the country a path to a better future. The current path of austerity is simply a path of pain as end in itself. This can be seen from examining the official projections.

The Second Great Depression—in Europe

from David Ruccio

Austerity, democracy, and economics

from David Ruccio

Here’s Amartya Sen, from an interview with Olaf Storbeck and Dorit Heß.

Question: Professor Sen, do you have the impression that economists and economic policy makers are learning the right lessons from the most severe economic and financial crisis since the Great Depression?

Answer: I don’t think that at all. I’m quite disappointed by the nature of economic thinking as well as social thinking that connects economics with politics.

What’s going wrong?

The new political economy of the Eurozone

I might be boring the pants off you with my European Central Bank Posts – but what’s happening in Europe is going very fast and it’s important. Power (lots of it) is shifting towards Frankfurt and Brussels. How will this power be used?

First, the shift. A quote from a recent speech from José Manuel González-Páramo, member of the board of the European Central Bank:

Meanwhile, in Europe… Unemployment hits a record, differences larger than ever (Nov 2011, graph)

from Merijn Knibbe

According to last weeks Eurostat unemployment report the EZ unemployment rate did not change in November, compared with the month before (10,3%). The number of unemployed in the European Union however increased with 55.000 to a new record. According to the press release, ‘Compared with November 2010, unemployment rose by 723 000 in the EU27 and by 587 000 in the euro area’. But averages do not serve us well when we look at either the European Union or the Eurozone, as differences between countries are still increasing (graph). When we look at a somewhat longer period we see employment rates converging up to 2008. After about january 2008, i.e. quite some time before ‘Lehmann’, rates in Ireland and Spain start to explode and differences bertween countries became larger than ever.

The Euro is leaving Greece – and a new Great Depression has entered.

from Merijn Knibbe

Do Great Depression’ policies lead to ‘Great Depression’ results? Yes, they do. Look at this chart showing the development of the money supply in Greece:

The ECB’s high wire act

from Dean Baker

At this point the sovereign debt crisis in Europe is almost getting boring. We’ve seen the same script played out over and over with country after country. The basic story is the markets begin a run on the debt of a country: Greece, Ireland, Italy, Spain etc.

The troika, the European Central Bank (ECB), the European Union (EU), and the International Monetary Fund (IMF) then demand a series of austerity measures. In addition, they sometimes demand measures unrelated to fiscal policy, such as a lower minimum wage in Ireland or weaker employment protection legislation in Italy, that are intended to weaken workers’ bargaining power. As a quid pro quo, the troika then arranges enough bond purchases or other supports to get through the immediate crisis.

Europe’s Crisis and Latvia’s “Success”

from Mark Weisbrot

In recent months some advocates of Europe’s austerity policies have been touting Latvia as a “success story” that shows how “internal devaluation” can work. This was the theme of a book published earlier this year by the Peterson Institute for International Economics, one of Washington’s most influential think tanks. The book was co-authored by the Institute’s Anders Aslund and Latvia’s Prime Minister Valdis Dombrovskis.

The case study is very relevant to Europe because there are important similarities between Latvia’s economic strategy since 2008 and that now being promoted by the European authorities – the European Commission, the European Central Bank, and the International Monetary Fund (IMF), otherwise known as “the Troika.”

Meanwhile, in Europe… (22). Government deficits, large and small (chart).

from Merijn Knibbe

The leaders of the Eurozone countries have decided to maximise the structural national government deficits to 0,5% of Gross Domestic Product. Didn’t they learn anything from recent history (graph)?

It’s getting real in the Eurozone: self-inflicted recession threatens World Economy

from Mark Weisbrot

The economic news out of the eurozone is getting worse every day, and so is the contagion to the rest of the world. The OECD (Organization for Economic Co-operation and Development), the club of 34 mostly high-income countries, has now lowered its projection for eurozone growth for 2012 from 2 percent (in May) to just 0.2 percent. According to their report, the 17-member eurozone economy already “appears to be in a mild recession.” For the U.S., the forecast for next year was lowered from 3 percent to 2.1 percent.

Forecasts for China, India, and Brazil have also

Breaking (up the Euro) news. Eurzone housing market might be crashing

from Merijn Knibbe

Today, the European Central Bank published new data on M3 money growth in the Euro Zone

The data are entirely consistent with: DISASTER LOOMS

Euro break-up beckons

from Peter Radford

It’s a holiday here in the US so we can all sit back and watch the slow motion dance towards the break-up of the Euro while we ponder our own ineptitude. An ineptitude that, fortunately, we can take a day’s break from.

Why talk of the end of the Euro?

Because of the spectacle that unfolded in Germany this week. A regular small sale of German bonds was significantly undersubscribed. Only two thirds of the offering was taken up, meaning that the German central bank had to buy the rest for secondary sales over the next few days.

“To the Parliament of the Republic, to the Political Parties”

Dear friends,

We submit to your kind attention a petition [at the bottom of this post] addressed to the Italian Parliament and to the political parties with some proposals concerning the current economic policy situation. We are asking for signatures from both our Italian and foreign colleagues and we shall publicise the petition both on the Italian and foreign mass media after a significant number of signatures is collected.