Dirk Ehnts – The Eurozone is Fully Committed to Modern Monetary Theory (MMT)

In my book “Geld und Kredit: Eine €-päische Perspektive” (3rd edition, 2020) I gave the following recommendation on p. 243 (English version available here):

“This [stabilizing employment in the eurozone with fiscal measures] can be done by the ECB declaring that, in case of doubt, it will buy up all the government bonds of eurozone countries. This would make national government bonds risk-free. It must then be clarified which deficit limits are reasonable in times of upswing and recession. This would leave (or re-establish) the responsibility of national governments for full employment.”

This is exactly what has happened now: deficit limits are lifted, government bonds are risk-free. This was already implied. The previous ECB President Mario Draghi said in September 2019 that the ECB should explore new ideas such as MMT (here). His successor, Christine Lagarde, remarked half a year earlier that MMT is not a miracle cure, but could help to combat deflation (here). A key insight of the MMT is that government debt and deficits are not a problem (here), as the central bank ensures that government bonds are risk-free. The ECB is now doing the same. So all lights are on green: national governments can increase their spending at will. A financing question does not arise. Failures cannot occur, so questions of liability are also irrelevant....

Brave New Europe

Dirk Ehnts – The Eurozone is Fully Committed to Modern Monetary Theory (MMT)

Bill Mitchell — Bundesbank remits record profits to German government while Greek health system fails

I will write a detailed account of my view on how to deal with the coronavirus from an Modern Monetary Theory (MMT) perspective next week. But today I want to highlight something that just ‘goes through to the keeper’ (cricket reference meaning no-one pays attention to it) but is significant in understanding what is wrong with the Eurozone. I refer to information that is contained in the latest – Annual Report 2019 – released last week by the Deutsche Bundesbank. If you juxtapose that with another report on the Greek health system you get a fairly clear view on what is wrong with the whole EU set up....

Bill Mitchell – billy blog
Bundesbank remits record profits to German government while Greek health system fails
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — The EU outdoes itself in the madness stakes

One of the themes I exercised when speaking in Europe recently, particularly when presenting at the French Senate Commission and the Ministry of Finance, was that by pushing European integration into an unworkable currency union and refusing to budge, the European political class was undermining the valid aspects of the ‘European Project’, which the likes of Jean Monnet and Robert Schuman saw as a way of bringing peace to the Continent after several attempts by Germany to usurp the rights of citizens in other European nations through military endeavours. Research released by the The PopuList Project – is a UK Guardian motivated attempt to bring together academics and journalist to study shifts in European voting sentiment since 1989. It is overseen by Martin Rooduijn at the University of Amsterdam. The latest results are rather alarming for those who hang on to hope that the European Union is capable of progressive reform. And the latest shenanigans in the European Commission and the Council over the ‘Budget’ is indicative of why the PopuList Project is generating such results. If there was foresight among the leaders in Europe they would take a step back and restore national currencies and restore the quality of European democracy, which has been significantly compromised since the 1990s....

Bill Mitchell – billy blog
The EU outdoes itself in the madness stakes
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Eurozone 2020. Don’t mention the War! Bill Mitchell

I guess I cannot avoid commenting on the European Commission’s recently released (February 5, 2020) – Economic governance review – which, allegedly, “seeks to assess how effective the economic surveillance framework has been in achieving three key objectives: ensuring sustainable government finances and economic growth, as well as avoiding macroeconomic imbalances; … promoting convergence in Member States’ economic performance.” The short answer is that the framework has failed on all fronts. The Member State fiscal situations are always mostly teetering on the edge of insolvency and only the ECB has been bailing them out; macroeconomic imbalances that really matter, such as the on-going illegal German external surpluses persist, and divergence is the Eurozone norm. Why? Another simple answer: because the architecture of the currency union is deeply flawed and biases the economies to crisis and makes them vulnerable, in an existential sense, to fluctuations in global activity. Why would they have done that? Answer: the triumph of neoliberal ideology over reason....

Bill Mitchell – billy blog
Eurozone 2020. Don’t mention the War!
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Data suggests a unilateral Greek exit would have been much better than their colonial future under the Troika

Yesterday (November 26, 2019), the news came out from the Hellenic Minister of Finance that Greece had completed its latest repayment of 2.7 billion euros to the IMF early (Source). They owed around 9 billion euros to the IMF. Greece had to go ‘cap-in-hand’ to its “European creditors” to gain permission to make the payment early, which they claim saves them crippling interest rate payments. The loans were locked in at 4.9 per cent per annum – usury rates by any definition. Celebration seems to be the message from the neoliberals. But, from my reckoning, the disaster for Greece continues. On September 30, 2019, the IMF European Director Poul Thomsem gave an extraordinary (for its shameless arrogance) speech on Greece at the London School of Economics. Entitled – The IMF and the Greek Crisis: Myths and Realities– Thomson admitted that the IMF had revised its date at which they think Greece will finally get back (in GDP per capita terms) to the pre-crisis level. When they devised these usury loan packages, they claimed that “it would take Greece 8 years to return to pre-crisis level”. Now, they have revised that projection to 2034 – yes, you read that correctly – a generation of waste and foregone opportunities. When you look at their own scenarios for a unilateral exit in 2012, it becomes obvious (and I have said this all along) that exit could not have been worse than what the Greek people are enduring and will endure for an entire generation.

By way of background, recall that Thomsen was the IMF’s architect of Greece’s original bailout....

Bill Mitchell – billy blog
Data suggests a unilateral Greek exit would have been much better than their colonial future under the Troika
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Andrea Terzi — Euro area financial balances send a warning signal

Professor Andrea Terzi is an MMT economist. Here are some observations on the EZ. The second link contains a link to a recent paper of his, "A critical analysis of public debt under a non-convertible currency standard: Implications for the euro area"

Money And The Real Economy
Euro area financial balances send a warning signal

The euro area has a unique opportunity
Andrea Terzi, Professor of Economics, Franklin College, Switzerland

Bill Mitchell – Euro policy elites deliberately destroyed jobs and income to achieve erroneous fiscal goals

As Mario Draghi’s tenure at the helm of the ECB draws to a close, he becomes (slightly) more pointed and looser with his public statements. On Friday (October 11, 2019), he gave a speech – Policymaking, responsibility and uncertainty – at the Università Cattolica in Milan on the occasion of receiving the Laurea Honoris Causa (honorary degree). He broadened the scope of his policy ambit by saying that “I will not focus strictly on monetary policy or the business of central banking, but I would like instead to share my thoughts on the nature of policy responsibility.” In the same week, the Eurogroup (the European Finance Ministers) of the European Commission released a press release – Remarks by Mário Centeno following the Eurogroup meeting of 9 October 2019 (October 10, 2019) – which announced that they had agreed to a “a budgetary instrument for the euro area – the so-called BICC”. Don’t get too excited. The BICC will only achieve the status of an “Inter-Governmental Agreement”, meaning it will not be embodied in the Treaties. Also, the Member States will have to contribute funds in advance and must “co-finance” withdrawals. And, as usual, there was no mention of the fund size, which will be miniscule if history tells us anything. But this is all context for Mario Draghi’s Speech....

Bill Mitchell – billy blog
Euro policy elites deliberately destroyed jobs and income to achieve erroneous fiscal goals
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — When old central bankers know what is wrong but can’t bring themselves to saying what is right

Last Friday (October 4, 2019), a group of former central bank governors and/or officials in Europe, issued a statement damming the conduct of the European Central Bank. You can read the full text at Bloomberg – Memorandum on ECB Monetary Policy by Issing, Stark, Schlesinger. The timing of the intervention is interesting given the change of boss at the ECB is imminent. As I explain in what follows, the Memorandum should be disregarded. Its central contentions are mostly correct but the alternative world it would have Europe follow would be a disaster for many of the Member States and the people that live within them. It would almost certainly result in the collapse of the monetary union – which would be a good outcome – in the face of massive income and job losses and the social and political instability that would follow – which would be a bad outcome. What it tells me is that the monetary union is a massive failure. It would be far better to dissolve it in an orderly manner to avoid those massive income and job losses and to support the restoration of full currency sovereignty and national central banks. That would be the sensible thing to do....

Bill Mitchell – billy blog

When old central bankers know what is wrong but can’t bring themselves to saying what is right
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

MMT Has a Big Hurdle to Overcome to Succeed in Europe — Carolynn Look

Reporting about MMT that is actually accurate. Winning!

Yahoo Finance
MMT Has a Big Hurdle to Overcome to Succeed in Europe
Carolynn Look, Bloomberg

Bill Mitchell — The EU pronouncement of a Greek success ignores the reality

I keep reading ridiculous articles about Brexit in the UK Guardian. The latest was comparing it to pre-WWI Britain and suggesting there were no signs of a “Damascene moment remainers hoped for”. I thought that reference was apposite – given the reference invokes St Paul’s conversion after he was struck blind. Good analogy – blind and remainer. The Brexit imbroglio is all the more puzzling because it seems to be a massive mismatch of scale – a currency-issuing nation and an organisation with no currency and no democratic legitimacy. And that is before one even contemplates the nature of that organisation. On August 20. 2019, the European Union provided us with a perfect example of why no responsible government would want to be part of it. In its – Daily News 20/08/2019 – there were three items. The last item told us that construction output in the EU28 had declined by 0.3 per cent in June 2019. The first item was a sort of cock-a-hoop boast about how great Greece is after the EU saved it from disaster. Parallel universe sort of stuff. Britain will thank its lucky stars after October 31, 2019 when it goes free from that madness. Even though the remainers remain ‘blind’ without their Damascene moment”….

Bill Mitchell – billy blog
The EU pronouncement of a Greek success ignores the reality
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Completing The Euro: The Euro Treasury And The Job Guarantee — Esteban Cruz-Hidalgo, Dirk H. Ehnts, Pavlina R. Tcherneva

Abstract
The problems with the design of the Eurozone came into focus when, late in 2009, several member nations– notably Greece – failed to refinance their government debt. The crisis that followed was not entirely asurprise. When the Euro was launched in 1999, many economists warned that the single currency was unworkable. Even Eurozone optimists argued that the Euro project would eventually need to be completed. More than 10 years after the crisis, unemployment rates remain elevated and continue to threaten the social, political and economic stability of the Eurozone. The institutional constraints of the single currency however preclude bold action to address these challenges. In this paper, we suggest that tackling the twin problems of the Eurozone – its institutional flaws and mass unemployment – could be addressed by creating a Euro Treasury that would finance a Job Guarantee program, which would eliminate mass unemployment, enhance price stability, and foster social and economic integration across Europe.

COMPLETING THE EURO: THE EURO TREASURY AND THE JOB GUARANTEE
Esteban Cruz-Hidalgo, Universidad de Extremadura, Dirk H. Ehnts European University of Flensburg, Pavlina R. Tcherneva Bard College

Bill Mitchell — Germany is now suffering from the illogical nature of its own behaviour

Last week (August 9, 2019), the British Office of National Statistics (ONS) – GDP first quarterly estimate, UK: April to June 2019 – told us that the UK economy contracted by 0.2 per cent in the June-quarter 2019 after having grown by 0.5 per cent in the March-quarter. The UK Guardian pundits and the Remain cheer squad all screamed Brexit and were heard to be walking around in circles saying “see, we told you so”. Meanwhile (August 7, 2019), not far away (according to the Remain crowd’s much-loved gravity trade models), Germany’s Statistisches Bundesamt (Destatis) press release – Production in June 2019: -1.5% seasonally adjusted on the previous month – told a sorry tale. In annual terms, Germany’s industrial production has contracted by 5.2 per cent. We also learned that Germany is probably in recession. According to the Remain-logic, that must be Brexit too, n’est-ce pas? Meanwhile, just a bit further south, Italy is in turmoil. Obviously, Brexit uncertainty. I jest of course (well a bit). But in a real sense, this is all tied into Brexit in one way – and it is not the way the Remain camp would like us to believe. In fact, what I have in mind gives more weight to the Leave position and reflects on how intransigent the European Union elites are in dealing with the Member States....

Bill Mitchell – billy blog
Germany is now suffering from the illogical nature of its own behaviour
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

A bigger bazooka — Christopher Dembik

Applying MMT in the EZ.

The likely growth slowdown in the euro area in the coming quarters will be the trigger for this new phase of expansionist fiscal policy.

However, uncertainty remains as to the scale and the implementation of the stimulus. If it is up to member countries, the stimulus is likely to be under-supplied as many governments will have little incentive to do much. Europe will face the same free-rider problem as in the past, with countries patiently waiting to benefit from the stimulus policies of their neighbours. The ideal scheme would be that of coordinated fiscal expansion through fiscal agreement or a proper common budget incorporating counter-cyclical mechanisms. That would involve highly sensitive political concessions, especially on risk-sharing, and high execution risk, but this would be the most efficient way for the eurozone to avert an upcoming economic downturn.

ZAWYA — A Thompson-Reuters site
A bigger bazooka

Christopher Dembik

Bill Mitchell — The Greek colony remains in depression

On June 13, 2019, the European Stability Mechanism (ESM) released its – Terms of Reference for the Evaluation of the Greek Programmes. At the same time, the head of the ESM (Klaus Regling) was lecturing Greece, which is approaching a national election next month, that it “risks missing its budget target” (Source). Apparently, as the failed Syriza government tries to gain electoral support after years of abusing the Greek people who put their faith in them, the bean counters are worried that the permanent state of austerity that the Greek colony is now being held in by the Euro technocrats (and the IMF) might be relaxed a little. Regling claimed there was “great risk” in the Greek government engaging in fiscal slippage. When you look at the data, a fiscal flood is needed not just some ‘slippage’. But such is the oppression of the colony that the technocrats are bearing down on the Government. Meanwhile, the Europhile Left continues to laud the EU as a productive arrangement protecting progressive values. It is beyond laughable....

This is a longish, detailed post that displays the underlying dynamics from an MMT POV. Lots in there.

The post also demonstrates how neoliberalism is jointed at the hip with neocolonialism through finance.

Bill Mitchell – billy blog
The Greek colony remains in depression
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Fiscal policy paralysis and ECB credibility in tatters

Last week, the EU finance ministers (the ‘Eurogroup’) met (June 13, 2019) in Luxembourg as part of their regular schedule. There was a lot of talk in the lead-up to the meeting whether Emmanual Macron’s push for a more coherent EU fiscal capacity to act as a counter-stabilisation capacity for the beleaguered Economic and Monetary Union (EMU). As is normal, there was no progress made and the press reports said that the finance ministers “continued to clash over almost every feature of the new fiscal tool, including the source of funding” (Source). No surprises at all. So the ‘fix the roof while the sun is shining’ agenda, that many Europhile Left commentators have been hoping for, was abandoned. The roof still has gaping holes and the EMU will once again fail badly when the next economic cyclical downturn comes through. And further, the lack of leadership in the fiscal area is creating a massive dilemma for the ECB and its conduct of monetary policy. In effect, the lacuna is demonstrating to all and sundry that monetary policy is incapable of achieving the aims despite the ECB deliberately breaching the legal framework established for it in the Treaties. The Eurozone dysfunction goes to a new level – and it is a time of growth....

Bill Mitchell – billy blog

Fiscal policy paralysis and ECB credibility in tatters
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Fiscal Money Can Make or Break the Euro — Yanis Varoufakis

The parallel payment system that Greece's government proposed in 2015 would have bolstered the eurozone. By contrast, the Italian government's planned "mini-Treasury bills" would lead to the single currency's demise.

Sounds like the Italian plan is far superior.

Project Syndicate
Fiscal Money Can Make or Break the Euro

Yanis Varoufakis

Europe’s Silent Majority Speaks Out George Soros

Important because of who said it.

Project Syndicate.
Europe’s Silent Majority Speaks Out

George Soros

Thomas Piketty — Europe and the class cleavage

In all the referendums for the last 25 years the working classes have systematically expressed their disagreement with the Europe presented to them, whereas the richest and the most privileged classes supported it. During the French referendum on the Treaty of Maastricht in 1992, we observed that 60% of the voters with the lowest incomes, personal wealth or qualifications voted against, whereas the 40% of the electorate with higher incomes voted in favour; the gap was big enough for the yes vote to win with a small majority (51%). The same thing happened with the Constitutional Treaty in 2005, except that this time only the top 20% were in favour of the yes vote, whereas the lower 80% preferred to vote no, whence a clear victory for the latter (55%). Likewise for the referendum on Brexit in the UK in 2016: this time it was the top 30% who voted enthusiastically to remain in the EU. But, as the bottom 70% preferred to leave, the leave vote won with 52% of the votes. 

What is the explanation? Why are votes on the European Union always characterised by such a marked division of social class? This outcome is all the more puzzling as the structure of the vote for the different political parties has long since ceased to be so clearly marked by the class structure, with the three dimensions of social division (qualifications, income, personal wealth) all pulling in the same direction. Since the 1970-1980s; the most highly qualified have swung distinctly towards the left wing parties in both countries, whereas those with the highest incomes and personal wealth continue to tend to support the right-wing parties, which are themselves undergoing change. On the other hand, during the votes concerning Europe in 1992 (French referendum on Maastricht Treaty), 2005 (French referendum on constitutional treaty) and 2016 (UK referendum on Brexit), the intellectual and economic elites in both instances found themselves supporting the EU as it existed, whereas the less privileged categories on the left and on the right rejected it.

The reason for this, according to those who are better off, is that the working classes are nationalist and xenophobic, perhaps even backwards. However the xenophobia of the less well off is no more natural than that of the elites. There is a much simpler explanation: the European Union, as built in recent decades, is based on widespread competition between countries, on fiscal and social dumping in favour of the most mobile economic actors and functions objectively to the benefit of the most privileged. Until the European Union takes strong symbolic measures for the reduction of inequalities, for example a common tax which impacts the richest, enabling the taxes of the poorest to be lowered, this situation will continue....

Le Monde — Le blog de Thomas Piketty
Europe and the class cleavage

Thomas Piketty

Bill Mitchell — Eurozone horror story continues

Eurostat released the latest fiscal data for 2018 on Tuesday (April 23, 2019) which showed that – Euro area government deficit at 0.5% and EU28 at 0.6% of GDP – apparently a cause for celebration if you can believe the news reports that have accompanied the data release. The problem is that these numbers are meaningless without a context. And a relevant context is how well the monetary system is accommodating the advancement of material well-being among the citizens of Europe. On that ‘functional’ criterion, the horror story, more or less continues. Data relating to the real world (as opposed to the world of fiscal numbers on bits of paper) tell us that the damage from the GFC interacting with a dysfunctional monetary system design still lingers and the 19 Member States are still highly vulnerable to the next crisis. The austerity mindset remains and these fiscal outcomes indicate a failure of policy. Nothing to celebrate at all....

The only ones celebrating are the elites. They are doing fine, thanks to rent extraction.

Bill Mitchell – billy blog
Eurozone horror story continues

Debt, deficits and good housekeeping: what’s the fuss about?
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — German growth strategy falters – exposes deep flaws in the EU architecture

Last week (February 14, 2019), Eurostat released its latest national accounts estimates – GDP up by 0.2% and employment up by 0.3% in the euro area – which confirmed that EU growth rates have declined significantly over the course of 2018. Moreover, the December-quarter data confirmed Italy is in official recession and Germany recorded zero growth (thereby avoiding the ‘technical recession’ category after contracting by 0.2 per cent in the September-quarter). Export expenditure accounts for nearly 50 per cent of Germany’s GDP – a massive proportion. It has adopted a growth strategy based on impoverishing its own residents through flat wages growth and a sustained proportion of low-paid, precarious jobs and setting its sail on sucking out expenditure from other nations (in the form of their imports). This has been particularly damaging to the Eurozone partners but also exposes Germany to the fluctuations in world export markets. Those markets are softening for various reasons (economic and political) and, as a result, German growth has hit the wall. The solution is simple – stimulate domestic demand, push for higher wages for workers, outlaw Minijobs, and start fixing the massively degraded public infrastructure that the austerity bent has starved. Likelihood of the German government adopting that sort of responsible policy. Zero to very low. There is the problem of the Eurozone from another angle. The main economy cannot play the game properly....

Bill Mitchell – billy blog
German growth strategy falters – exposes deep flaws in the EU architecture
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia