Look, it’s simple, the euro is finished. It won’t survive the unmitigated scandal that Greece has become. Greece is not the victim of its own profligacy, it’s the victim of a structure that makes it possible to unload the losses of the big countries’ failing financial systems onto the shoulders of the smaller. There’s no way Greece could win.
The damned lies and liars and statistics that come with all this are merely the cherry on the euro cake. It’s done. Stick a fork in it.
The smaller, poorer, countries in the eurozone need to get out while they can, and as fast as they can, or they will find themselves saddled with ever more losses of the richer nations as the euro falls apart. The structure guarantees it.I agree that this crisis has finished the euro but it probably won't finish it off yet. But the seeds are now laid and inevitable crises in the future will recall the Greek experience that was riddled with duplicity, hidden agendas, malfeasance, and pervasive non-professionalism if not crime in the major EZ institutions right at the top. Trust has evaporated, and it cannot be regained without replacing the people responsible and revising the institutions upon which the EZ is based.
That will not happen if the upshot of the financial crisis in the United States is any indication, and I suspect Wall Street is a paradigm case in a neoliberal order controlled by vested interests. The US financial industry was not significantly reformed in the US and most of the perpetrators remain in place, even after felony charges against principal institutions, but not the officers responsible for establishing a criminogenic environment and running a control fraud. London's answer was even more bizarre, basically declaring the City a free zone. Based on such precedent, it can be expected that the situation in the EZ will not change substantially other than the mortal wounding of the institutions in charge of administering it.
It will likely take at least one more crisis in both the US and the EZ to prompt significant change will be painful for many. It will be avoided as long as possible. But world events are conspiring against domination of the system by the West, which has become rotten at the core, run in the interest of the tops thousandth percent of the population and their minions and cronies, with crumbs for the rest. The top thousandth percent is fast pulling ahead of the rest of the top 1%, which is creating dissatisfaction with distribution at the top of the income and wealth accumulation chain.
This means that the future is increasingly uncertain, and whatever happens in Greece won't have much bearing on it globally. The role of Greece has been as the canary in the coal mine, and now it is clear that the oxygen in the system is running low.
I don't buy it. The euro isn't finished. Whether Greece stays in or leaves, the rest will go forward with greater institutional integration in line with the German model of centralized financial authoritarianism.
ReplyDeleteWe'll see as Italy and then France buckle after Spain and Portugal if they don't fix it, which Germany is unlikely to assent to. German taxpayers are not going on the hook for other countries "sins," and the German elite is not going to accept even moderate inflation. There's a rationale underlying how the EZ is structured, as Bernard Leitaer revealed in a recently posted link.
ReplyDeleteEuropeans would like to enjoy the benefits of a union while maintaining national sovereignty. Germany is the hegemon of Europe and other countries aren't OK with that. Germany is not OK with getting ganged up on by other countries, either.
There's already a hot war in Europe and the arms race is on again. Countries are being pressured to increase their military spending on NATO armaments and armies. That's a further tax that limits fiscal space. Add to that the immigration onslaught.
I don't see any way for the sectoral balances to add up that depend on the EZ to be a net exporter in aggregate and all economies in the EZ being net exporters, too, which is necessary without either fiscal transfers or draconian cuts in social programs, which is in the neoliberal playbook but which European societies will resist.
Without the external sector offsetting, there is no fiscal space. The EZ is not an optimal currency zone, and it won't become one in the foreseeable future, especially toying with admitting more basket cases in eastern European.
Going to a fiscal union to undertake transfers presumes a political union and a United States of Europe is not in the cards at this point. The popular votes are not there.
I am open to hearing about different numbers if someone thinks they have a scenario that makes it work in the current context. But that scenario has to be politically feasible as well as economically.
As I see it, steering the present course, the Europeans are headed for debt depression. which if left festering eventually leads to war or revolution. The future is not bright without radical changes, especially in light of increasing military contributions and addressing accelerating climate change.
the rest will go forward with greater institutional integration in line with the German model of centralized financial authoritarianism.
ReplyDeleteYou may be correct in this assessment, Dan. But now the case has been laid on the table and there is no mystery about Germany being the European hegemon that everyone else takes orders from. Maybe that will fly, but I don't see France accepting it.
From the French point of view, the major reason for setting up the EZ was bridling the power of Germany in Europe. They are not going to sign on to an EZ that is new German Reich, as I see it. But maybe the French are the pussies that the Americans think they are.
BtW, a new German Reich running Europe is not in the interest of the US or UK either.
Europe's population seems perfectly prepared to tolerate very low growth rates and fairly high unemployment for a long time, but the added military spending with be stimulative. I don't think you can derive anything very useful from the sectoral balances framework. For one thing, that framework doesn't even include transfer payments.
ReplyDeleteIf military spending is on budget then it will affect the fiscal balance, which means that staying in the required limits will require either cutting spending or increasing exports. It's like US states having to kick in on their budgets for the US miliatry. Russia and China are both introducing fifth generation weapons that make NATO weaponry obsolescent, so national military budgets are going to have to ramp up.
ReplyDeleteSectoral balances are a good rough guide as to what is possible. If sectoral balances were not material the EZ wouldn't have a problem. TPTB has set up for running small national deficits, so countries have to cut spending or raise taxes (impose austerity) just when they need to increase fiscal deficits absent offset by the external sector. And they are stuck with a Europe whose value is inflated by German policy. Now they also face increased military spending and spending on immigration issues at the same time that sanctions are reducing exports to Russia. The saving grace right now is lower cost of energy.
Great when things are going well, Bad when things turn sour. The periphery is doing poorly, in some cases, to put it mildly, and calling the state of the Italian and French economies "fair" is probably a euphemism.
And we still don't know the fallout from Greece if any. Lehman turned out to have involved more systemic risk than the government suspected. Of course, if it had been seriously suspected, TPTB wouldn't have put it under. Here we see the ECB pulling the plug on Greece. We'll see whether it is ring-fenced.
I should also clarify that i don't see Golden Dawn winning a new election should Syriza resign. But nationalism and euro-skepticism are increasing, and the parties of the right are gaining ground by addressing it.
I think that the Greek crisis and the troika handling of it orchestrated from Germany have doomed the EZ, but I expect the patient to linger around for another crisis or two before succumbing.
Oops. "Europe" should be "euro" in "stuck with a Europe whose value is inflated by German policy."
ReplyDeleteThe euro is the new DM in many respects, which lowered the value of the DM benefiting German exports, but at the same time strengthening the currency used by the other EZ countries putting them at an export disadvantage. This is a problem in a currency zone that is based on net exporting
Yes, It is a longer timeframe perhaps Tom. I don't see It turning so bad economically so fast that the eloctorate would turn it into revolution. Yet economics is what justifies and legitimates any regime. Most people didn't like the Soviet Union during the times when they didn't kill you for speaking against it but they never really wanted a revolution or the state to break up for real. It wasn't their dream but it was all they knew, it was kind of ok and who knew what the changes might have brought. The political elite lost their credibility and legitimacy in the eyes of ordinary people when the stores had shortages and the prices of everything went up (people in my country said that they were willing to eat potato peels but they wanted to be independent).
ReplyDeleteIt is not that ordinary people in Europe don't care about the lack of democracy in EU's political proccess or high unemployment. They put up with it because in their mind going alone in globalising world is not a real alternative and things could be worse. So things have to get worse and not just economically. If member state governments are doing something against the will of its people because of EU or people think this is done because of EU then this will build up to a point when people say again: we are willing to eat potato peels but we want out. It seems you cannot quit euro without leaving EU any way.
The Greece coin has two sides. If they are going to finance Greece without inflicting enough pain to Greek people then this will build up anger in creditor nations. So it is a bad situation any way you slice it.
"which lowered the value of the DM benefiting German exports"
ReplyDeleteThe German firms lowering their prices in USD terms "benefited" German exports... the new EUR/USD rate just reflects these new real terms...
"...I don't think you can derive anything very useful from the sectoral balances framework. For one thing, that framework doesn't even include transfer payments".
ReplyDeleteWhen transfer payments are spent they become part of GDP and thus of the sectoral balances framework.
ReplyDelete"For one thing, that framework doesn't even include transfer payments".
It doesn't if you've been infected with a brain-eating amoeba.
Dan, are you being obtuse just out of boredom, or are you really that pissed that MMT doesn't provide The One True Economic Answer that satisfies any degree of granularity? The one thing that it eschews to begin with?
You're angling for Bob Roddis's spot, aren't you?
"It seems you cannot quit euro without leaving EU any way. "
ReplyDeleteYou can. Article 27 and Article 28 of the terms and conditions of operation of TARGET-ECB allows either side to terminate the account of the other on notice.
So it is easy to leave the Eurosystem and terminate the peg of the national central bank to the ECB's liabilities (which is what makes a Euro a Euro).
It's also fairly easy to derogate from the EU Treaty in national law and prevent it applying in a country. The EU treaty is not a constitution like the US one that has jurisprudence superiority come what may. The EU treaty applies by consent of the national sovereigns. (i.e. it is like Texas being able to say which bits of the US constitution it will enforce and the state court having final say).
But of course as we know the EU treaty is really a form of the Pirate Code, as in they are not so much rules as guidelines. Ultimately it boils down to what you can get away with politically and logistically.
There is no law without enforcement and there is no federal level enforcement mechanism in the EU.
Of course the other countries could refuse to trade with Greece. Greece would then sue under freedom of movement. Other countries would counter sue. There would be lots of judgements, but unfortunately insufficient tanks and armoury to enforce anything.
Once you get to that stage trust vanishes and the EU falls apart.
Always start looking at law from the enforcement mechanism and work backwards. If you can't find an enforcement mechanism then they are just pointless words on a page representing an 'aspiration' at best.
Tom: "German taxpayers are not going on the hook for other countries "sins"..."
ReplyDeleteBut it need not cost a single taxpayer penny if the right monetary policies are implemented, Werner-style QE and ECB eurobonds. If the EZ can then implement US-style fiscal transfers, then the EZ can be saved.
Although all of this is straightforward and easy to implement, it looks politically impossible. That is, Germany will not give an inch. So we can look forward to the long drawn out death of the euro, especially when Italy, Spain, Portugal, Ireland, and more interestingly France, run into real economic difficulties.
A counter argument a friend of mine has made is that Greece is the pound (or tonne) of flesh that Germany requires before it is politically possible for it to not only do what is necessary (QE, eurobonds, fiscal transfers) to save the euro but to make it successful. Germany has prospered and can't overplay its hand by doing to the major countries in the rest of Europe, except for Austria, the Netherlands and Finland, what it has done to Greece. A euro made up of Germany and three tiny economies is so pointless that Germany may as well relaunch the mark.
Move Thought:
ReplyDelete"You're angling for Bob Roddis's spot, aren't you?"
LOL!!!!
I cannot comment on that Neil since I am not a legal expert but I've read ECB analyses on this. It could be biased of course. Wikipedia says the topic is controversial. Some legal experts agreeing with ECB and some aren't.
ReplyDeleteI am not worried about Greece once it leaves, US is going to support It because of Russia's influence. I am sure EU countries will trade with Greece.