Albistea: Nice Mentions in Bloomberg1:
Nine People Who Saw the Greek Crisis Coming Years Before Everyone Else Did
Ahead of their time?2
Hona hemen ‘ikusleak’:
Wynne Godley: The British economist wrote about his own concerns in a 1992 article for the London Review of Books3.
Arnulf Baring: The German political scientist offered dire predictions in his 1997 book Scheitert Deutschland? Here’s an English translation4.
Mathew Forstater: In an article for the Eastern Economic Journal, published in 1999, the economist discussed his concerns for the future of the euro currency5.
Milton Friedman: In a keynote address with the Bank of Canada in 2000, the Nobel laureate offered some cautious words when asked about the future of the euro6.
Costas Simitis: In December, 2008, the former Greek Prime Minister mentioned the country’s economic data in a speech to the country’s parliament. It later emerged that Greece had flattered its debt profile through a series of deals.
Stephanie Bell Kelton: In an essay published in 2002, Kelton maintained that “prospects for stabilization in the eurozone appear grim.”7
Margaret Thatcher: According to her autobiography, back in 1990 the former Prime Minister of the United Kingdom warned that the single currency could not accommodate stronger and weaker economies8.
Warren Mosler: As early as 2001, this economist anticipated flaws in the euro zone because its political structure does not allow individual member nations to manage a financial crisis due to the currency union9.
L. Randall Wray: This economist was critical of the structure of the euro zone in his 1998 book, Understanding Modern Money10.
9 horietatik 5 DTM-koak dira: Wynne Godley, Matt Forstater, Stephanie Kelton, Warren Mosler eta Randall Wray.
Mosler-ek honela gehitzen du: “Saw it all coming in 1995 and held a conference on it in 1996 in Bretton Woods.”
2 Ikus http://www.bloomberg.com/news/articles/2015-07-15/nine-people-who-saw-the-greek-crisis-coming-years-before-everyone-else-did.
3 Ingelesez: “What happens if a whole country—a potential ‘region’ in a fully integrated community—suffers a structural setback? So long as it is a sovereign state, it can devalue its currency. It can then trade successfully at full employment provided its people accept the necessary cut in their real incomes. With an economic and monetary union, this recourse is obviously barred, and its prospect is grave indeed unless federal budgeting arrangements are made which fulfil a redistributive role. … If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation.”
4 Ingelesez: “They will say that we are subsidizing scroungers, lounging in cafés on the Mediterranean beaches. Monetary union, in the end, will result in a gigantic blackmailing operation. When we Germans demand monetary discipline, other countries will blame their financial woes on that same discipline, and by extension, on us. More, they will perceive us as a kind of economic policeman. We risk once again becoming the most hated in Europe.”
5 Ingelesez: “Under the EMU, if investors are at all hesitant about any one member’s debt, they can buy another member’s debt without incurring currency risk, since there is no exchange rate variability among the currencies of member countries. Because member nations now are dependent on investors for funding their expenditure, failure to attract investors results in an inability to spend. Furthermore, should a member’s revenues fail to keep pace with expenditures due to an economic slowdown, investors will likely demand a budget that is balanced, most likely through spending cuts. In other words, market forces can demand pro-cyclical fiscal policy during a recession, compounding recessionary influences. … Even if there were no imposed limits on countries’ deficits and national debts, the structure of the EMU makes it nearly impossible for a country to enact a counter-cyclical fiscal policy even if there were the political will. This is because, by giving up their national monetary sovereignty, countries are no longer able to conduct coordinated fiscal and monetary policy, essential for a comprehensive and effective remedy to periodic demand crises. Why would countries voluntarily sacrifice the ability to conduct a coordinated macroeconomic policy, especially at a time when official unemployment rates are in double digits and there are clear deflationary pressures?”
6 Ingelesez: “I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them.”
7 Ingelesez: “Countries that wish to compete for benchmark status, or to improve the terms on which they borrow, will have an incentive to reduce fiscal deficits or strive for budget surpluses. In countries where this becomes the overriding policy objective, we should not be surprised to find relatively little attention paid to the stabilization of output and employment. In contrast, countries that attempt to eschew the principles of “sound” finance may find that they are unable to run large, counter-cyclical deficits, as lenders refuse to provide sufficient credit on desirable terms. Until something is done to enable member states to avert these financial constraints (e.g. political union and the establishment of a federal [EU] budget or the establishment of a new lending institution, designed to aid member states in pursuing a broad set of policy objectives), the prospects for stabilization in the Eurozone appear grim.”
8 Ingelesez: “We had arguments which might persuade both the Germans — who would be worried about the weakening of anti-inflation policies — and the poorer countries — who must be told that they would not be bailed out of the consequences of a single currency, which would therefore devastate their inefficient economies.”
9 Ingelesez: “History and logic dictate that the credit sensitive euro-12 national governments and banking system will be tested. The market’s arrows will inflict an initially narrow liquidity crisis, which will immediately infect and rapidly arrest the entire euro payments system. Only the inevitable, currently prohibited, direct intervention of the ECB will be capable of performing the resurrection, and from the ashes of that fallen flaming star an immortal sovereign currency will no doubt emerge.”
10 Ingelesez: “Under the EMU, monetary policy is supposed to be divorced from fiscal policy, with a great degree of monetary policy independence in order to focus on the primary objective of price stability. Fiscal policy, in turn will be tightly constrained by criteria which dictate maximum deficit-to-GDP and debt-to-deficit ratios. Most importantly, as Goodhart recognizes, this will be the world’s first modern experiment on a wide scale that would attempt to break the link between a government and its currency. … As currently designed, the EMU will have a central bank (the ECB) but it will not have any fiscal branch. This would be much like a US which operated with a Fed, but with only individual state treasuries. It will be as if each EMU member country were to attempt to operate fiscal policy in a foreign currency; deficit spending will require borrowing in that foreign currency according to the dictates of private markets.”
joseba says:
The European Project is dead
http://bilbo.economicoutlook.net/blog/?p=31389
“When the GFC emerged and confirmed what Modern Monetary Theory (MMT) proponents had been predicting for more than a decade, I initially thought that this might be the ‘paradigm-shift’ line in the sand with respect to economic theory and policy.
(…) I thought the GFC would so destroy the public credibility of Monetarism’s latest iteration, which we call neo-liberalism, that we could find intellectual space to restore rigor to economic policy and the way economics was taught in the universities. I even thought that the pragmatic and dramatically successful use of fiscal stimulus in most advanced countries would provide the empirical reinforcement necessary to repudiate and expunge neo-liberalism forever. I was wrong. But what the GFC has achieved as neo-liberalism hangs onto the reigns of power in policy making circles is a major breakdown of the what is referred to as the European Project.
(…) Jean Monnet and Robert Schuman would be turning over in their graves to see what their ‘Project’ has become under the domination of Wolfgang Schäuble and his lackeys in the Eurogroup. So we might see the demise of neo-liberalism after all as it destroys the grand European political project
(…)
At the heart of his early thoughts on European integration was a conceptualisation of democracy. In working through how the so-called ‘Common Assembly’ (which became the European Commission), would work, Monnet understood that there had to be a democratic mandate.
(…)
The resulting Werner Report (released in March 1970) outlined a staged plan to a common currency.
(…)
The later MacDougall Report (1977) reinforced the need for a central fiscal authority and the responsibility of a European Parliament for the decisions taken by that authority.
(…)
Greece has become a colony of Europe and the IMF.
(…)
Greece will also have to submit its legislation to the Troika editors for their approval. Since when has a democratic nation had to do that?
(…) the former Greek Finance Minister wrote an Op Ed in the German Die Zeit (July 15, 2015) (…)an English-language version on his own site – Dr Schäuble’s Plan for Europe: Do Europeans approve?.
(…)
While Greece has been an important ideological experiment the faulty foundations were revealed long before the actual GFC manifested and go to the heart of how the ‘European Project’ has destroyed itself.
Even as early as July 4, 1991, the European Commission issued a Communication to the European Council (…) The Commission identified “worrying set-backs” among some countries in terms of rising fiscal deficits in the face of an acknowledged “less favourable economic situation”.
What they were finding almost immediately was that the fiscal rules envisaged under the Stability and Growth Pact (SGP) were not suitable for the swings in the economic cycle that European economies encountered and the impact those fluctuations had, via the automatic stabilisers, on the fiscal outcomes of the Member States.
The Groupthink that has destroyed Greece in recent years was well advanced in 1991.
(…)
The fault lines in the monetary union thus were evident even before the Maastricht Treaty was signed.
(…)
Even the single currency was not yet unanimously accepted.
Further, there was no agreement as to how an unelected and politically independent European Central Bank would be consistent with democratic ideals.
(…) the Eurozone was an ideological invention rather than a serious attempt to bring prosperity to the people of Europe.
(…)
The faulty foundations were also visible long before the currency was even introduced as the nations struggled to meet the so-called convergence criteria before ‘Stage III’ of the transition were finalised.
At the time, no-one believed that Italy much less Greece would meet the criteria. If Dr Dr Schäuble was aiming to get rid of Greece, then his predecessor Theodore Waigel was clearly against Italy being part of the original deal.
(…)
Then came the 1992/93 monetary crisis which should have stopped the whole venture in its tracks. This was the Black September (…)
The Bundesbank pushed up interest rates on 16 July 1992 because of its concern for rising inflation associated with the reunification.
(…)
By pushing interest rates up in Germany, the Bundesbank demonstrated it was more concerned about its own monetary conditions irrespective of their overall impacts on Europe’s exchange rate mechanism.
It was the leading currency and the strongest trading economy and thus it had to take leadership in helping the other currencies retain their agreed values in the European Monetary System.
To help the French franc and the Italian lira etc, the Bundesbank would have to sell marks. It selfishly allowed its own inflation obsessions to dominate and the EMS became highly unstable – again!
The Bundesbank decisions were particularly problematic for Germany’s neighbours because they faced recession and unemployment was already high. The increased German interest rates forced them to increase their own interest rates beyond the levels deemed prudent given their domestic circumstances.
Monetary policy was locked into ensuring the exchange rates were stable and higher unemployment was the casualty.
(…)
We knew even then that the common currency model proposed in the Maastricht Treaty which would be dominated by Germany would fail – back then.
The September 1992 currency crisis (…)
The 1992–93 crisis demonstrated that the system of fixed exchange rates or even tightly linked exchange rates between economies that were disparate in structure and performance would always fail with mobile capital.
After that crisis was swept under the carpet, the next disaster was the convergence process which descended into farce as the Germans had to fudge the books to get close to the unrealistic criteria.
(…)
It became obvious that Germany itself might not meet the deficit and public debt thresholds laid out in the convergence criteria and internal dissent within Germany was rising.
Waigel’s response was exemplified by his claim that:
I have never nailed myself on the cross of 3 percent. When I said in the past ‘3 per cent means 3 per cent’ I did not necessarily mean 3.0 per cent’
(…)
The convergence farce demonstrated that the final decision on who would enter the EMU would be political and the convergence criteria were really a smokescreen, a sort of delusional security blanket designed to placate the German public and the conservatives elsewhere that the process was disciplined and sustainable.
There was no economic logic, just a set of arbitrary numbers grabbed out of the air, which were then backfilled with a series of spurious ‘economic’ reports that claimed to represent these numbers as ‘economic knowledge’.
They were never that. They were always just ideological statements about the Monetarist disdain for government activity.
(…)
In 2003, Germany was one of the first nations to transgress the SGP rules (…)
By 2002, Germany was heading into recession and its deficits were rising well above the 3 per cent rule limits.
It was ordered to reduce the deficits but defied the Commission because it new that any further slowdown in the German economy would generate a larger deficit because unemployment would continue to rise.
Germany (and France) was in breach of the rules by the end of 2002 and was now caught up in the trap it had set for Italy, Greece and other ‘suspect’ nations.
The German economy further contracted in 2003 and the fiscal balance rose to 4.2 per cent of GDP up from 3.8 per cent in 2002.
(…)
The Finance Ministers (who advised the Council on these matters) decided under German pressure to ignore the recommedations.
The Eurozone as envisaged effectively ended at that point.
(…)
Then the Great Financial Crisis struck and we know what happened then.
So Greece is just one step along the path of this disastrously designed system. The neo-liberals claim now that there is no alternative (TINA) but Britain knew all along there was – retain currency sovereignty.
(…) an economist from the so-called progressive Levy Institute in the US, who is working as the ‘Alternate Minister for Combatting Unemployment’ in the Syriza Government, was quoted as saying that:
Mr Tsipras had no choice but to capitulate in the face of pressure from creditors, led by Germany, because the alternative was the complete collapse of the banks, and the meltdown of the economy.
Which is just apologist rubbish.
(…)
Of course there was an alternative and if Syriza had have shown leadership consistent with its mandate to end austerity it would have discussed with the Greek people the benefits of exit.