Bill Mitchell — The EMU reform ruse – Part 2

This blog continues the discussion from yesterday’s blog – The EMU reform ruse – Part 1 – where I consider the reform proposals put forward by German academic Fritz Sharpf, which have been held out by Europhile Leftists as the progressive way out of the disaster that the Eurozone has become. Yesterday, I considered his first proposal – to continue with the enforced structural convergence to the Northern model – the current orthodoxy in Brussels. Like Sharpf I agree that the agenda outlined in the 2015 The Five President’s Report: Completing Europe’s Economic and Monetary Union would just continue the disaster and would intensify the political and social instability that will eventually force a breakup of the monetary union. Sharpf’s second proposal is that the EMU dichotomise into a Northern hard currency bloc while the Southern states (and others less inclined to follow the German export-led, domestic-demand suppression growth model) reestablish their own currencies and peg them to the euro with ECB support. While it is an interesting proposal and certainly more adventurous than the plethora of proposals that just tinker at the edges (for example, European unemployment insurance schemes, Blue Bond proposals and the like), it remains deeply flawed. While it is assumed that the Northern bloc would comprise core European nations such as Germany and France, it is not clear that either would prosper under the new arrangement. France and Germany were never been able to maintain stable currencies prior to the EMU. Further, the ‘exit’ proposal ties the poorer nations into a vexed fixed exchange rate arrangement, which would always compromise their domestic policy freedom, just as it did under the earlier versions of the Snake or the European Exchange Rate Mechanism (ERM). Far better to just break the whole show up and let the nations go free with floating exchange rates....

Bill Mitchell – billy blog
The EMU reform ruse – Part 2
Bill Mitchell | Professor in Economics, University of Newcastle, New South Wales, and Director of the Centre of Full Employment and Equity (CofFEE)

George Soros must be senile or coming down with Alzheimer's because he forgot how he broke the Bank of England

Soros must be getting senile or he has Alzhemer's or something because he's clearly forgotten how he nearly "broke the Bank of England."

He is commenting here on how, if Scotland were to break away from Britain, it would be a bad idea to have its own currency because the currency would be vulnerable to attack.

Too bad the total opposite is true.

A free-floating, non-convertible Scottish currency might be vulnerable to speculative attack, but it wouldn't get very far because it would have ZERO power to destabilize Scotland's economy. The country's monetary and fiscal policy would be totally unaffected by changes in the exchange rate and therefore, speculators could push and push and push, but they'd be pushing against who? Against themselves, that's who. That's becaue the central bank or Treasury would not be forced to take the other side of that trade in order to defend some arbitrary exchange rate. So the spec attack could hardly last very long.

Believe me, I know. I spent years as a floor trader. When us guys (speculators) on the floor wanted to push the  market around it was always far more effective if we knew there were outsiders who were on the other side of that trade and vulnerable to margin calls or stops or whatever. If we just sold (or bought) against each other, the move would go nowhere fast.

Soros made a billion dollars by betting that England would pull out of the ERM in 1992. Why? Because the Bank of England was taking the other side of his and other speculators' sales. Eventually, the BOE could not defend the exchange rate anymore and it pulled out causing a HUGE readjustment in the pound. Soros covered his shorts when that happened and the rest is history.

He seems to have forgotten all this.

Seriously, does he not see the pitfalls of borrowing in someone else's currency? George...look at the countries in the Eurozone...hello??? Now look at Japan or the U.S. or Britain. See any difference?

George is lost, but the media and probably Scottish proponents of independence will follow his advice for sure. That's bad news for the Scots.