Schäuble’s plan — force Greece out of the Eurozone

14 Jul, 2015 at 09:19 | Posted in Economics | 1 Comment

Five months of intense negotiations between Greece and the Eurogroup never had a chance of success. Condemned to lead to impasse, their purpose was to pave the ground for what Dr Schäuble had decided was ‘optimal’ well before our government was even elected: That Greece should be eased out of the Eurozone in order to discipline member-states resisting his very specific plan for re-structuring the Eurozone.

image-2This is no theory.
How do I know Grexit is an important part of Dr Schäuble’s plan for Europe?
Because he told me so!

I wrote this article not as a Greek politician critical of the German press’ denigration of our sensible proposals, of Berlin’s refusal seriously to consider our moderate debt re-profiling plan, of the European Central Bank’s highly political decision to asphyxiate our government, of the Eurogroup’s decision to give the ECB the green light to shut down our banks.

I wrote this article as a European observing the unfolding of a particular Plan for Europe – Dr Schäuble’s Plan.

Yanis Varoufakis

O horrible! O, horrible! most horrible!

13 Jul, 2015 at 22:40 | Posted in Economics | 3 Comments

Greece has 72 hours to implement draconian austerity measures and must place state assets worth 25 per cent of Greek GDP into a fund administered by the European Union just to open talks on a new bailout.

After a 17-hour eurozone summit that ended this morning, Alexis Tsipras, the Greek prime minister caved in to new demands for economic reforms, cuts and guarantees as the precondition to begin negotiations on a third €86 billion Greek bailout.

The Times

Why not just face it — austerity doesn’t work.

When an economy is already hanging on the ropes, you can’t just cut government spendings. Cutting government expenditures reduces the aggregate demand. Lower aggregate demand means lower tax revenues. Lower tax revenues means increased deficits — and calls for even more austerity. And so on.

How was it possible, it has to be asked, for the basic Keynesian insights and analyses to be so badly lost in the making of European economic policies that imposed austerity? Some of the dominant figures in the financial world have had a long-standing scepticism of the economic relations on which Keynes focused which is being emended only now, with reality checks being made in observations of the penalty of the neglect of Keynesian relations …

7ti40If failing to understand some basic Keynes­ian relations is a part of the explanation of what happened, there was also another, and more subtle, story behind the confounded economics of austerity. There was an odd confusion in policy thinking between the real need for institutional reform in Europe and the imagined need for austerity – two quite different things …

An analogy can help to make the point clearer: it is as if a person had asked for an antibiotic for his fever, and been given a mixed tablet with antibiotic and rat poison. You cannot have the antibiotic without also having the rat poison. We were in effect being told that if you want economic reform then you must also have, along with it, economic austerity, although there is absolutely no reason whatsoever why the two must be put together as a chemical compound. For example, having sensible retiring ages, which many European countries do not (a much-needed institutional reform), is not similar to cutting severely the pensions on which the lives of the working poor may depend (a favourite of austeritarians). The compounding of the two – not least in the demands made on Greece – has made it much harder to pursue institutional reforms. And the shrinking of the Greek economy under the influence mainly of austerity has created the most unfavourable circumstances possible for bold institutional reforms.

Amartya Sen

Ignoring elementary economics

13 Jul, 2015 at 19:12 | Posted in Economics | 6 Comments

KeynesByGrant The negotiations on the Treaty of Versailles have so far been disrupted by the attitude of a British negotiator, a certain John Maynard Keynes. He has a flamboyant personality and dubious morals, and has consistently employed an arrogant and professional tone to crush other negotiators with his contempt.

Ignoring the elementary lessons of economics, Mr Keynes has argued that countries running current account surpluses, and which have made significant efforts, are just as responsible as countries running deficits in creating economic imbalances. Moreover, he has asserted that in times of underemployment, the surplus countries should spend more, thereby encouraging prodigality. He has claimed that in periods of economic hardship, public spending should be increased, and has mocked officials who naturally believe that a country cannot increase its output by spending less in order to save more. He has supported the view that Germany should be allowed to reconstruct its economy by cancelling its debts, whereas crushing Germany under the weight of repayments would push the country into misery, and so encourage its far right. In fact, it is of course clear that even a partial cancellation of debts would set a dangerous precedent, and favour waste. Lastly, he has called on all countries to scrap policies decided unanimously, which support the return to gold parity at pre-war levels. Moreover, he has claimed that this objective is not only costly and unfeasible, but has also been responsible for Europe’s weak growth, while Mr Keynes has refused to accept that wages are excessive.

Having alienated all the reasonable representatives and delegations, Mr Keynes has chosen to resign. This is good news for peace in Europe.

The Appalled Economists

Sounds familiar, doesn’t it?

The Schäuble-Feldstein Grexit plan

13 Jul, 2015 at 16:31 | Posted in Economics | Comments Off on The Schäuble-Feldstein Grexit plan

German finance minister Wolfgang Schäuble obviously contemplates the possibility of a temporary Greek euro-exit.

Actually, Martin Feldstein — Harvard professor of economics — proposed that option already four yeas ago:

bruxelles-minaccia-ateneA temporary leave of absence from the eurozone would allow Greece to achieve a price-level decline relative to other eurozone countries, and would make it easier to adjust the relative price level if Greek wages cannot be limited. The Maastricht treaty explicitly prohibits a eurozone country from leaving the euro, but says nothing about a temporary leave of absence (and therefore doesn’t prohibit one). It is time for Greece, other eurozone members, and the European Commission to start thinking seriously about that option.

And even more, I think there are overwhelmingly good reasons to question if the euro really is a worthwhile experiment at all …

They promised ‘euro convergence.’ Now look what we’ve got!

12 Jul, 2015 at 15:43 | Posted in Economics | 6 Comments

These data suggest that while there is evidence of euro area convergence in terms of long-term interest rates and the real exchange rate (which would be expected given the common currency and regional short-term interest rate), there is surprisingly little evidence of euro area policy convergence in terms of economic growth, employment, and inflation. Helping to explain the lack of economic convergence in terms of these primary policy outcomes, the data also show relatively little euro area convergence, even increased divergence, in terms of government spending, a primary fiscal policy instrument.

Matt-Kenyon-illustration-009In short, a common regional monetary policy has not been sufficient to produce convergence in terms of the most politically important macroeconomic policy outcomes (e.g. growth, employment, and inflation) when there remains divergence among EMU member states in terms of their fiscal policies. Indeed, given the European Union’s (EU’s) inability to enforce the terms of its Stability and Growth Pact (SGP) and varying national preferences for fiscal policy expansion, economic policy divergence seems likely to persist, even expand as more (and less developed) national economies enter into the euro area …

To conclude, what have political scientists learned after ten years of experience with a common currency and monetary policy in Western Europe? Despite all the optimism associated with regional policy convergence during a period of favorable economic conditions in the late 1990s, we have learned that economic policy convergence among the euro area countries has not continued after 1999 and may have even reversed in certain dimensions. For policymakers, the lack of policy convergence means that European monetary union rests on a fragile foundation; indeed, this foundation will likely become even more problematic as the EU’s new less developed national economies formally enter into the euro area. For IPE scholars, the lack of EMU policy convergence means that convergence theory has not demonstrated much validity even in its most favorable empirical domain.

David Bearce Journal of European Public Policy

Paul De Grauwe on unreasonably pushing Greece further into austerity

10 Jul, 2015 at 21:06 | Posted in Economics | Comments Off on Paul De Grauwe on unreasonably pushing Greece further into austerity

 

Abandon the euro and save Europe!

10 Jul, 2015 at 20:48 | Posted in Economics | Comments Off on Abandon the euro and save Europe!

Si tout se passe bien, nous assistons au commencement de la fin de l’union monétaire européenne. « Si l’euro échoue, l’Europe échoue », disait Angela Merkel. Aujourd’hui, c’est exactement l’inverse. L’euro est en train de détruire l’Europe. Si l’euro échoue, il se pourrait quand même que l’Europe finisse par ne pas échouer. Ce n’est pas certain : les blessures qu’a causées l’union monétaire sont trop profondes. bruxelles-minaccia-ateneAvec l’arrivée au pouvoir en Grèce du parti de gauche Syriza, en alliance avec un parti groupusculaire d’extrême droite, le projet monstrueux consistant à greffer une monnaie commune à des sociétés ayant des économies différentes semble devoir connaître la fin qu’il mérite. … L’instant de vérité est arrivé pour une politique d’intégration européenne qui a échappé à tout contrôle, dont le moteur est le capital financier. Pour que l’Europe ne se transforme pas en un marécage d’incriminations réciproques entre nations, avec des frontières ouvertes et en courant à tout moment le risque d’être submergée de l’extérieur, il faut démanteler ce monstre qu’est l’union monétaire. Le démantèlement doit se dérouler sur la base du contrat social, avant que l’atmosphère ne soit trop empoisonnée pour cela. Comment s’y prendre : voilà ce dont on doit débattre. Il faut permettre aux pays du Sud une sortie en douceur, peut-être au sein d’un euro du Sud qui n’exigera pas de leur part des « réformes » détruisant leurs sociétés. Quant à ceux qui, au début de l’union monétaire, leur ont fait l’article en leur promettant qu’ils pourraient jouir sans fin des crédits issus des subprimes, ils doivent le payer, tout comme ceux qui savaient de quoi il retournait et n’ont rien dit. Au lieu de l’étalon-or de fait que l’on utilise dans le rapport avec l’Europe du Nord, il faut mettre en place un régime monétaire qui permette la flexibilité tout en excluant l’arbitraire. Les économistes sont de plus en plus nombreux à le réclamer, et l’on compte parmi eux des poids lourds comme l’Américain Alan Meltzer. Nous devons faire ce qui est nécessaire – non pas pour sauver l’euro, mais pour sauver l’Europe

Wolfgang Streeck/Le Monde

Great article — and it actually confirms what Wynne Godley wrote almost twenty years ago:

If a government stops having its own currency, it doesn’t just give up “control over monetary policy” as normally understood; its spending powers also become constrained in an entirely new way. If a government does not have its own central bank on which it can draw cheques freely, its expenditures can be financed only by borrowing in the open market in competition with businesses, and this may prove excessively expensive or even impossible, particularly under “conditions of extreme emergency.” greece-feb12-bank__3197265k If Europe is not to have a full-scale budget of its own under the new arrangements it will still have, by default, a fiscal stance of its own made up of the individual budgets of component states. The danger, then, is that the budgetary restraint to which governments are individually committed will impart a disinflationary bias that locks Europe as a whole into a depression it is powerless to lift.

Wynne Godley

Lästips till finansminister Magdalena Andersson

10 Jul, 2015 at 10:16 | Posted in Economics | Comments Off on Lästips till finansminister Magdalena Andersson

Vid en analys av den svenska depressionens förlopp är det viktigt att ha klart för sig att statsskuldens snabba tillväxt inte har utgjort någon orsak till krisen utan istället varit ett symptom på nedgången i ekonomin. I själva verket skulle krisen ha blivit djupare om inte mycket stora underskott i de offentliga finanserna släppts fram … Krisförloppet innebar en överflyttning av en given skuldbörda från privat till offentlig sektor. Någon ökning av folkhushållets totala skuldsättning har inte kommit till stånd.

debtEn nödvändig privat skuldsanering utgör alltså kärnan i den svenska depressionen … Man måste också fråga sig hur krisen skulle ha utvecklat om den offentliga sektorn inte hade accepterat att utgöra en — förhoppningsvis tillfällig — ‘parkeringsplats’ för den privata sektorns alltför stora skulder …

De stora budgetunderskotten kan ses som ett resultat av en omfattande ‘socialisering,’ där den offentliga sektorn kortsiktigt bidrar till att lyfta av den privata en alltför stor skuldbörda …

Statsskuldsutvecklingen spelar idag en viktig pedagogisk roll som indikator på den fara som ligger i dröjsmål med det ekonomisk-politiska reformarbetet. Endast under hotet om statsbankrutt förefaller Sveriges riksdag förmögen att fatta beslut om begränsningar av statens utgiftsåtaganden.

Hans Tson Söderström

Ibland är det nog inte så dumt även för en minister att veta vad hon talar om — istället för att sitta i svenska nyhetsprogram och apropå dagens Grekland referera till “svenska erfarenheter” som inte har ett smack med verkligheten att göra …

Magdalena Anderssons mumbo jumbo om Grekland

9 Jul, 2015 at 21:59 | Posted in Economics | Comments Off on Magdalena Anderssons mumbo jumbo om Grekland

När Magdalena Andersson talar om vilka lärdomar från vår svenska 90-talskris som eurozonens krisländer bör dra är det en och samma fråga som ständigt kommer upp: budgetsaneringen. Och allt sedan 2010 har ledande svenska politiker upprepat sina beskäftiga råd till Grekland: Gör som Sverige gjorde på 90-talet! Undvik budgetunderskott! Ordning och reda, krona för krona! Även jag tycker att det finns lärdomar att dra. Men de skiljer sig från finansministerns.

stefanDen svenska 90-talskrisen var, liksom den globala finanskrisen 2008, en följd av den privata sektorns ansvarslöshet. Det var inte staten utan affärsbankerna som låg bakom de spruckna fastighets-bubblorna. Men visst hade regeringarna också ett ansvar för att ha underlåtit att strama åt under de goda tiderna. Den svenska statsbudgeten uppvisade åren före kraschen 1992 stora överskott. De gigantiska budgetunderskotten vi fick senare var en följd av krisen, inte dess orsak. På bara två år gick vi från ett budgetöverskott på 3,8 procent av BNP till ett underskott på 11,6 procent åt 1993. Sant är att till exempel Grekland hade ett budgetunderskott redan före krisen – ja, redan innan landet släpptes in i EMU – men det var ganska litet …

Minskad arbetslöshet kräver att det finns tillräcklig efterfrågan på varor och tjänster och därmed på arbetskraft. Att stora delar av Europa drabbats av massarbetslöshet beror inte på att medborgarna har blivit latare utan på att det saknas jobb.

Efterfrågan kan komma från den offentliga sektorn, den privata sektorn eller utlandet. I Grekland ser det inte ljust ut så länge staten tvingas spara, löner och pensioner sjunker och den internationella konjunkturen är svag. Är det av okunnighet som Magdalena Andersson låtsas som att fortsatt svältpolitik löser problemet med bristande efterfrågan och massarbetslöshet i Grekland?

Stefan de Vylder

De Vylder har — som vanligt — helt rätt.

Precis som i Sverige för tjugo år sedan är de grekiska budgetunderskotten till stor del ett resultat av att den offentliga sektorn mer eller mindre tvingats avbörda den privata sektorns skuldbörda, och därtill påtvingats en fullständigt utsiktslös åtstramningspolitik dikterad av euro-medlemskapet.

Det här vet vår finansminister mycket väl, men väljer — vilket framgick med önskvärd tydlighet när hon tidigare i kväll i Aktuellt med dumdryga standardfraser lekte Wolfgang Schäuble — att låtsas som om åtstramning skulle kunna leda Grekland ut ur sin brydsamma situation. Uselt, urbota uselt.

Greece and the too-big-to-bail banks syndrome

9 Jul, 2015 at 19:55 | Posted in Economics | Comments Off on Greece and the too-big-to-bail banks syndrome

 

Schäuble goes Matrix

8 Jul, 2015 at 10:18 | Posted in Varia | 2 Comments

 

Non-ergodicity and the evolution of cooperation

7 Jul, 2015 at 15:30 | Posted in Economics | 1 Comment

Cooperation, here, is a persistent behavioural pattern of individual entities pooling and sharing resources … Here we point out a very general mechanism – a sufficient null model – whereby cooperation can evolve. The mechanism is based the following insight: natural growth processes tend to be multiplicative. In multiplicative growth, ergodicity is broken in such a way that fluctuations have a net-negative effect on the time-average growth rate, although they have no effect on the growth rate of the ensemble average. Pooling and sharing resources reduces fluctuations, which leaves ensemble averages unchanged but – contrary to common perception – increases the time-average growth rate for each cooperator …

peters2011_cloudEconomics should be the place to look for an explanation of human social structure, but oddly the basic message from mainstream economics seems to be that optimal, rational, sensible behaviour would shun cooperation. In many ways we see cooperation in the world despite, not because of, economic theory.

Many economists are aware of this shortcoming of their discipline and are address- ing it, often from psychological or neurological perspectives, as well as with the help of agent-based evolutionary simulations.

We show that cooperation and social structure arise from simple analytically solv- able mathematical models for economically optimal behaviour. We contend that where economics uses models of such simplicity it ignores essential insights of the last two centuries of mathematics. Specifically, economics uses inappropriate math- ematical representations of randomness. These representations have been essentially unchanged since the 17th century. As a consequence effects of fluctuations and risk (or of dynamics and time) are not properly accounted for …

In our model the advantage of cooperation, and hence the emergence of structure is purely a non-linear effect of fluctuations – cooperation reduces the magnitude of fluctuations, and over time (though not in expectation) this implies faster growth …

The impact of risk reduction on time-average growth suggests that risk man- agement has a rarely recognised significance. Fluctuation reduction (i.e. good risk management) does not merely reduce the likelihood of disaster or the size of up and down swings but also it improves the time-average performance of the structure whose risks are being managed. In a financial context the value of a portfolio whose risks are well managed will not just display smaller fluctuations, but will grow faster in time. Similarly, a well-diversified economy will grow faster in the long run than a poorly diversified economy.

Ole Peters & Alexander Adamou

The German Social Democratic Party and Greece

7 Jul, 2015 at 11:55 | Posted in Economics | 5 Comments

As I sat in my office at Brown University on December 16, 2014, an email popped into my inbox with the title “Herzlichen Glückwunsch – Sie sind der 1. Preisträger des Hans-Matthöfer-Preises für wirtschaftspublizistik.” This was the award given by the Friedrich Ebert Stiftung (FES), the research foundation closest to the German Social Democratic Party (SPD), and the Hans-Matthöfer Stiftung for the best economics publication in German in 2014 …

So I was awarded the prize at a ceremony in Berlin for “thinking differently” about economics … I had ten minutes to say something useful at the end of the event. But what should I say that would be of use to the six hundred social democrats gathered in the room …

20150702_handels1All eyes are on Greece and the possibility of default or “Grexit.” Indeed, it’s an impossible position for all sides. The Greeks cannot pay back what they owe, given that the policies enacted to help them grow have resulted in the collapse of nearly a third of their economy. The young and the talented have left, leaving pensioners and the public sector behind.

But to recognize that fact and accommodate policy opens up issues in debtor countries such as Ireland and Portugal and Spain that creditor countries such as Germany do not want to deal with.

So how do we move forward, and what is the role of a social-democratic party in shaping this path? Two issues stand out for me. The first is what I refer to in Austerity as “the false promise of structural reform.” There can be no doubt that the debtor countries of Europe need major reforms in taxation systems, labor markets, business regulation, and a host of other areas.

But . . .

1) When we say “structural reform” we really have no idea what those words actually mean, and we often fall back on them as a back-handed acknowledgment that austerity has failed, or

2) We misunderstand what we did when we refer to prior episodes of structural reform, and thereby miss that it is impossible for anyone else to do what we once did.

Let me explain. “Structural reform” used to be called “structural adjustment.” And European lefties like us used to condemn it as absurd, ridiculous, “neoliberalism gone mad” — and yet we seem quite happy to unleash these policies, despite the damage that they have done in the developing world, upon our European partners.

When you ask for the content of what structural reform means, it seems to be a checklist of lower taxes, deregulate everything in sight, privatize anything not nailed down, and hope for the best. But are these policies not disturbingly American, if not Thatcherite? Indeed, isn’t this everything that the SPD is supposed to be against, and much of which the German public would never put up with?

European reforms take the more subtle cover of simply asking everyone to become “more competitive” — and who could be against that? Until one remembers that being competitive against each other’s main trading partners in the same currency union generates a “moving average” problem of continental proportions.

It is statistically absurd to all become more competitive. It’s like everyone trying to be above average. It sounds like a good idea until we think about the intelligence of the children in a classroom. By definition, someone has to be the “not bright” one, even in a class of geniuses.

Mark Blyth

Greece teaches the world a lesson

5 Jul, 2015 at 23:57 | Posted in Economics | 1 Comment

102805491-GettyImages-479128166.530x298

Räddaren i nöden — Eric Schüldt

5 Jul, 2015 at 18:53 | Posted in Economics | Comments Off on Räddaren i nöden — Eric Schüldt

radioI dessa tider — när ljudrummet dränks i den kommersiella radions tyckmyckentrutade ordbajseri och fullständigt intetsägande melodifestivalskval — har man ju nästan gett upp.

Men det finns ljus i mörkret! I radions P2 går varje lördagmorgon ett vederkvickelsens och den seriösa musikens Lördagsmorgon i P2.

Så passa på och börja dagen med en musikalisk örontvätt och rensa hörselgångarna från kvarvarande musikslagg. Här kan man till exempel lyssna på musik av Jonathan Roberts, John Tavener, Arvo Pärt och Stefan Nilsson. Att i två timmar få lyssna till sådan musik ger sinnet ro och får hoppet att återvända. Tack public-service-radio.

Och tack Eric Schüldt! Att i två timmar få lyssna till underbar musik och en programledare som har något att säga och inte bara låter foderluckan glappa hela tiden — vilken lisa för själen!

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