Wednesday, April 24, 2013

ECB says ditching austerity would not help euro zone


You can't even make this stuff up.... Reuters story via Yahoo! here ... (on second thought probably don't even read it, it will only piss you off ... here for the record only....).


30 comments:

Dan Kervick said...

Look, the plutocrats are just going to keep brazening this out. You did't need to see the refutation of the RR paper to know that austerity doesn't work. Just look at the economic performance of the UK under Cameron!

This has nothing to do with economic theory. The austerity mongers represent concentrated private capital. They have a plan to restructure western societies, continue with privatization and dismantle governments - and they are going to keep going unless stopped.

Now is not the time for more ivory tower talking and circle jerking. It's time for political mobilization and action.

Ralph Musgrave said...

The ECB vice president (Constancio) is right, though it’s not 100% clear from that article that he knows why he is right.

The reason austerity is needed in the Euro periphery has nothing to do with Rogoff’s daft arguments. In the EZ, the problem is the periphery’s lack of competitiveness compared to the core. Plus periphery countries cannot deal with that problem the way a monetarily sovereign country does: i.e. devalue. Perpheries have to endure years of austerity so as to get their costs down. That’s all pretty daft, but that’s common currencies for you.

It could be argued that Germany adopts too much of a “Rogoff” view. I.e. the core could perhaps do a bit of stimulus: but it couldn’t do much. Inflation in Germany is near 2% and their unemployment is a respect 5% or so. The repeat the REAL PROBLEM is periphery lack of competitiveness.

Matt Franko said...

Ralph,

Producing prosciutto is never going to be as 'productive' as producing knockwurst, parmeseano reggiano will never be as 'productive' as lorraine swiss, a nice bottle of rosado never as 'productive' as a 5000 gal vat of beer....

Heck, just look at the geography of the regions to know how 'productive' each region is going to be..

These diverse features of His creation can never be 'equalized' via fiscal policy, they can only be 'adjusted for' via fiscal policy, by rational human beings of course...

RSP,

Ignacio said...

Matt, the problem is there won't be agreegement over fiscal transfers intra-EU states.

Hell, I'm spanish and we already have big fuss over here over internal national fiscal transfers from some parts of the country to other parts. And knowing how hard was German unification things won't get easier (specially with teh current political structure of the EU). Politics in the eurozone can't be compared to politics in USA (specially cause the separatists in the USA lack economic power to 'federalists', but in the eurozone is the contrary).

Problems will persist as long as the CAD persist, these have been improving over here and would be ok'ish if it weren't because gas and oil imports. On the other side the job problem will persist because not enough wealth was created during the last decade to sustain the situation without carrying high CAD (it was all on top of a RE bubble), which we do not have external credit to run for anymore; this will be slowly fixed as theer is emigration (last quarter we registered negative population growth ever since that started to be recorded, in last decade nation went from 42 mill to 47.5 mill, and 5.5 of these millions wer inmigrants from South America and eastern Europe).

It's a painful situation but without currency devaluation being possible it's hard to solve. Monetary and fiscal policies are always going to favour core nations and as the eurozone economy is not homogeneous this poses a problem, given the lack of strong enough communitary fiscal regime.

Despite talks, deficits have been growing, and that's the only thing keeping the eurozone from falling apart and into a full depression. IMO, authorities will keep the situation like this (life support), while the global economy improves and helps throught exports.

It's a volatile situation but given the current options and situation, short term is the only thing that can eb one until the political conudrum is worked out (some countries abandoning the euro or allowing fiscal transfers and development plans).

R VMarkov said...

Before things in eurozone can get better they must get worse. Obviously the present sad state of affairs there isn't bad enough. There must be some blood on the European streets first.

Greg said...

"Producing prosciutto is never going to be as 'productive' as producing knockwurst, parmeseano reggiano will never be as 'productive' as lorraine swiss, a nice bottle of rosado never as 'productive' as a 5000 gal vat of beer....

Heck, just look at the geography of the regions to know how 'productive' each region is going to be.."

What exactly do you mena by this? How does just looking at the geography tell you something?

Matt Franko said...

Greg touched on it here:

http://mikenormaneconomics.blogspot.com/2012/02/productive-potential-of-greece-vs.html

The continent drains to the NORTH... nutrients flow that way...

Navigable rivers in the north... no earthquakes, volcanoes,

More "solid rock" in the south, less forest products, etc..

It's just harder to "get things done" in the south due in large part to the basic geography...

Take a look at this canal in Greece:

http://en.wikipedia.org/wiki/Corinth_Canal

Tough job... in Germany they just float on river barges (they didnt have to build the rivers):

http://www.heatingoil.com/blog/germans-stocking-heating-oil-prices/

Geography has a lot to do with our economics imo...

This is a good book on how New York became the "World Trade Center":

http://www.amazon.com/Wedding-Waters-Canal-Making-Nation/dp/0393327957

New York is the "big apple" because the gap is just up the Hudson River from this port city at Albany:

http://en.wikipedia.org/wiki/File:New_York_Relief_1.jpg

No gap, no "World Trade Center", etc...

We can monitor the inter-regional economic issues and make fiscal adjustments due to differing results that are caused by these differing features...

rsp,

paul said...

Compete for what? On the world scale it's all zero-sum. One succeeds at another's expense. Sure it may be theoretically possible to maintain some glorious harmony...but it ain't gonna happen.

Greece or Cypress trying to "compete" is a waste of time...they need to kiss the Euro goodbye and go back to a system of self-sustenance. The Euro is a failure.

Of course, when the periphery countries are working for nothing....to you know...compete...the CAD will go down because they won't be able to buy imports.

Somehow that's good for Germany?

Seems to me the rest of the world prospers largely as a result of U.S. spending on imports...our CAD is the big prop under the whole thing.

Matt Franko said...

Greg,

Here is ancient example from Augustus epitaph:

http://classics.mit.edu/Augustus/deeds.html

"I rebuilt aqueducts in many places that had decayed with age, and I doubled the capacity of the Marcian aqueduct by sending a new spring into its channel."

No fretting about "deficits" or whatever bullshit... some communities needed increased capacity for fresh water so he just did it... didnt worry about how much "money" was appropriated in one region vs another, etc, blah, blah, blah...... (btw which is womanish/feminine or something imo...)

rsp,

y said...

The Fed explicitly states that US government securities are "free of default risk":

"Since U.S. Government securities are free of default risk, exempt from state and local taxes, and among the most liquid of financial instruments, they are a popular investment for both individuals and institutions".

http://www.newyorkfed.org/aboutthefed/fedpoint/fed41.html

(4th paragraph)

Maybe they should tell the politicians.

Dan Kervick said...

Perpheries have to endure years of austerity so as to get their costs down.

Ralph, productivity increases and reduced costs are the result of investment not austerity. For periphery countries to become more productive and competitive they have to spend. Otherwise, they will just fall even further behind as their EZ competitors race ahead with new industries, new technologies and new innovations.

Unknown said...

Dan, you have to look at Ralph's political leanings as to where he is coming from. He believes that Southern Europeans and immigrants are lazy SOB's - he has said as much at various places - all available on the internet.

Tom Hickey said...

The repeat the REAL PROBLEM is periphery lack of competitiveness.

The real problem is the currency union itself. It cannot work. The quicker it is dissolved the better. The worst solution of all would be go from a bad condition to a worse one by adopting a fiscal union that the populace does not want.

The eurocrats should just recognize that they got ahead of themselves, chuck the whole thing, and wait until Europe is homogenous enough to be a united, if ever.

The eurocrats started as dreamers and then became schemers. The scheme blew up.

Tom Hickey said...

Right, Matt. Not only is ship transportation convenient. It is also the least expensive means of transporting large volume and heavy stock. Countries blest with good navigable transport lanes have an advantage.

Economic Geography

Tom Hickey said...

There is also something more geo-strategic going on here. The eurocrats have figured out that the value of the euro to the USD has to drop big time for the EZ to compete globally. So they are OK with a depression in the EZ if it does that. They figure they will win in the end by being more competitive globally if the euro devalues.

One has to remember that the euro is designed to position Europe favorably against the larger countries that overshadow the smaller European countries, which will overshadow the European countries as globalization continues.

Dan Kervick said...

"The worst solution of all would be go from a bad condition to a worse one by adopting a fiscal union that the populace does not want."

Of course, any imposition that the public does not want is a bad solution.

But imaginative Europeans should be putting together revolutionary proposals for a truly democratic and progressive fiscal union that the public might want if it is presented to them. Let the European public decide. But they need to be at least made aware of the possibility that there is a progressive and MMT-consistent way forward that moves in the direction of stronger union rather than disunion.

Ignacio said...
This comment has been removed by the author.
Ignacio said...

Dan, while I agree with you there is people who believes the way to do it (and certainly is the fastest and 'easiest' way for capitalists) is reducing the unitary labour cost.

In addition, do you think German corporations and politicians are interested in other nations being more (or at least equally) competitive in the fields where they hold major market shares?

Hence it's much more optimal for other countries to 'vietnamize' the for cheap labour and produce an environment for cheap acquisitions while you are at it (not only privatizations, but acquisitions of already private assets and holdings).

Tom Hickey said...

But imaginative Europeans should be putting together revolutionary proposals for a truly democratic and progressive fiscal union that the public might want if it is presented to them. Let the European public decide.

The elite would never permit a union in which their power was in jeopardy. That means that either Germany dominates or no-go. They have pretty much made that clear already.

Tom Hickey said...

@ Ignacio

Right, this is German neo-imperialism.

The German elite knows that the only chance they have in a globalized world of behemoths like the US, China, India, and Brazil, is to unite Europe under their leadership. Otherwise, Europe will lose its economic clout and therefore its political clout.

Britain faces the same fate. The solution for the Brits is a close alliance with the US, since they have a rocky history with the Continent.

Dan Kervick said...

If Germany knows that their own future prosperity depends on a united Europe, then that suggests other European countries have leverage over Germany. Other countries can demand equal terms under a union, and then dare Germany to walk if they don't like it. If it is true that Germans know that is a bad option for them, then they will take the deal that is offered, even if it is not the one they would have preferred.

Ralph Musgrave said...

Matt,

Obviously New York is where it is, and is successful because it surrounds a superb natural harbour. Plus it’s obvious that rivers in Germany assist transport in Germany. But does that mean that towns in the Mid West which are miles from the nearest waterway cannot compete? Tell that to the people of Denver.

Japan has almost no natural resources, but manages to compete.

Dan,

You claim that competitiveness derives from investment and that the cost reduction that comes from austerity is of no consequence. So if the pound Sterling was doubled in value on foreign exchange markets, Britain’s export customers wouldn’t mind paying double what they presently pay for British exports? I suggest the price charged by a country or any employer is an important determinant of how much they sell.

Re your claim that Germany’s “future prosperity depends on a united Europe..”, I doubt it. If Europe reverted to where it was prior to when the EU was formed, and every country in Europe had its own currency, that would be no problem at all for Germany. Obviously there’d be a finite dip in trade with other Euro countries, but what of it? Germany’s exports are in demand the world over: it does a huge amount of business with the US, China, etc.

Unknown,

Re my alleged belief that southern Europeans are “lazy SOBs”, I certainly don’t accuse them ALL OF THAT. On the other hand according to this article in The Economist, Greeks retire 5 years earlier than Germans:

http://www.economist.com/blogs/charlemagne/2010/02/greeces_generous_pensions


y said...

"Competitiveness" is a beggar-thy-neighbour strategy:

http://www.nakedcapitalism.com/2013/03/wolf-richter-the-stunning-differences-in-european-costs-of-labor-or-why-competitiveness-is-a-beggar-thy-neighbor-strategy.html

Matt Franko said...

"Greeks retire 5 years earlier than Germans"

Yes but Ralph, look at that low orbit photo of Greece at my link above; if one has to hump it up and down all of those mountains and pound it out of solid rock every day vice the nice soft soil plains of northern Europe, ones body probably breaks down 5 years earlier...

and then you have rail transport, how easy is it to hack a tunnel out of solid rock vice just laying rails across a flat open plain, etc...

Look at this project in turkey/Armenia (same as Greece/Italy/Spain/Portugal):

http://ngm.nationalgeographic.com/print/2010/08/new-silk-road/forrest-text

"Some 50 miles north of Ani, Ustael's workers continue to dig 13 feet every day. Once completed, the tunnel will run for a mile and a half, 1,300 feet beneath the surface. It will be one of the longest in Turkey, Ustael says, and everyone will know his name. "Maybe then I can go work someplace warm."

They have to hack it out of solid rock every day in those areas and up and down .... this is not as productive... apples and oranges, etc...

rsp,

Tom Hickey said...

The problem with that as I see it from here Dan is that the other Europeans elites are in cahoots with the German elite and are OK with Germany leading as the strongest economy. I was sort of the deal made using the DM as the basis of the euro to give the other countries more leverage and Germany a better (lower) exchange rate to support its mercantile economy. I suspect that the respective elites have figured it out and concluded that this is the best deal for all of them. But this is just my guess.

Tom Hickey said...

Obviously New York is where it is, and is successful because it surrounds a superb natural harbour. Plus it’s obvious that rivers in Germany assist transport in Germany. But does that mean that towns in the Mid West which are miles from the nearest waterway cannot compete? Tell that to the people of Denver.

The US has the advantage of the mighty Mississippi running north-south as about its center population-wise, and this artery is served by its many tributaries.

See The River (1938) by Pare Lorentz, one of the top film documentaries of all time.

Denver was a relatively small city until connected with the rest of the US with the concrete "rivers" that Ike spearheaded as the interstate highway system of freeways with some toll roads and bridges, which was promoted politically for military logistics.

Kristjan said...

My guess is that the best scenario right now is austerity. The more austere they become the quiker this nightmare will end. Federal Union talk is going to waste a lot of time and is going to make the misery longer, It will not be. If they start easing up on austerity then this is bad in long run. They have no other possible solution than internal devaluation in periphery. Otherwise It is like, "we keep spending, you keep exporting to us". This thing cannot last very long. There is going to be less and less believers in austerity solution. Yet deficits collectively would not be a problem for Europe, It's the CADs.

I don't think that they don't understand-austerity is damaging in periphery. It is the euro project that keeps them going. They know that the whole thing is gonna break apart once they admit that demanding austerity cannot work. They must understand by now that something is wrong with the euro.Hitler too kept going even though he must have understood at the end that Germany was going to loose the war. I believe within two years we see euro break up.

Matt Franko said...

K,

"Hitler too kept going even though he must have understood at the end that Germany was going to loose the war."

Good point... rsp

Dan Kervick said...

Ralph, what does that have to do with the EZ since EZ countries can't competitively devalue their currency?

Roger Erickson said...

So, Ralph, you agree with Mellon & Hoover?

The Endgame is Forced Liquidation
http://advisorperspectives.com/commentaries/hussman_042213.php

"Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people."

[For those that live through it, that is. Output Gap? We're not trained to look at reality that way.]