If the ECB can’t change this perception very, very soon — and I think it really is up to them — this goose is cooked.Read it at The New York Times | Conscience of a Liberal
The Breakeven Point (Wonkish But Terrifying)
by Paul Krugman | Professor of Economics, Princeton University
Not that wonkish, but terrifying.
The politics seems stuck. If the ECB doesn't step up in time, and there's not much time, it may well be over.
In a tangentially related video, Krugman chats with some British neoliberal drones.
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Unsure of how the inflation metrics he cites are achievable in any controlled way. In any case, the problem today is the same one that existed in 1999 - nations that have fought each other and have had deep seated differences throughout recorded history are more likely to pursue self interest when push comes to shove. Certainly, core politicians are never, ever going to insist their populations ride to the rescue of the lazy southern so-and-so's! This was the problem under gold standard and fixed exchange rate arrangements, where surplus nations never thought it was their job to reduce their surplus, but only for deficit countries to reduce their deficits. It has always been about self interest, and it always will be, which was why the half-baked Euro was an awful idea from the get go. It can't even survive a real test of its legitimacy. So yes, it's scary, but probably more for the poverty of ideas that the mainstream and elites actually pursue.
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Warren Mosler discussed German bonds a while back:
ReplyDelete"One reason rates are lower than otherwise could be, the idea that in a breakup, if Germany goes back to the mark, bond holders will experience currency gains on the presumed appreciation vs the other euro members."
http://moslereconomics.com/2012/04/18/low-german-yields/
The problem is that the benefits of the ~20% Euro Devaluation in the last year or so went primarily to German and Dutch companies. At the same time German and Dutch politicians made no effort to increase their domestic consumption/reduce their domestic savings but insist that the other nations increase their savings and reduce their consumption. Effectively the Germans and Dutch give nothing to the union economically or politically and take everything. So IMO the balance of payments is the symptom and not the root of the problem. The problem is 100% political as the EMU system was designed so that nothing could happen without German approval. And not surprisingly the Euro is managed to maximize German Mercantilism and everyone else, well they are out of luck.
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