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

Bill Mitchell — It is (way past) time to dissolve the disastrous EMU experiment in an orderly manner

Sometimes there is clarity. Like when the Koch brothers-funded report on US health care came up with the ‘wrong’ conclusion – that is the right conclusion – $US2 trillion dollars worth of right conclusion. And like when a hard-core German economist breaks ranks and lays out the case for scrapping the Eurozone. Clarity. In the past week there have been some notable contributions to the debate about the viability of the Eurozone. Two German academics, coming from opposite directions, basically reach the same conclusion – the EMU is dysfunctional and prone to crisis and poor outcomes. And then in the same week, a third German, an economist basically breaks ranks with the Europhile reform lobby (neoliberal though it is) and sets out in fairly clear terms how the distrust between Member States is so high that reforms will always be cheated on and the intent derailed. He opposes the creation of a federal fiscal capacity because weak nations would overstate the extent of recession to get more money. Further, more money would be forthcoming to these nations as a perverse ‘reward’ for failing to deregulate their labour markets. His arguments demonstrate without doubt why functional reforms will not be possible in the EMU. It is time (way past that) to dissolve the disastrous experiment in an orderly manner.

For those paying attention to goings-on in the EZ. Bill catches us up on the latest iteration of the debate, which is starting to shift toward the "this is not working and isn't workable" POV. The Germans are still being Germans and insisting on ordoliberalism.

Bill Mitchell – billy blog
It is (way past) time to dissolve the disastrous EMU experiment in an orderly manner
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Elements in a strategy for the Left

Reuters reported (July 8, 2018) that the awful Madame Lagarde was in France last week lecturing people on how the “joint euro zone budget could be designed with conditions so that it does not become a no-strings transfer of rich countries’ cash to poorer members”. Meanwhile, Jürgen Habermas was lecturing all and sundry on how a “frightened retreat behind national borders cannot be the correct response to … the politically uncontrollable functional imperatives of a global capitalism that is being driven by unregulated financial markets” (Source). Meanwhile, in the UK, the ‘Remainers’ think staying in the corrupt EU is a good idea because the Tories are so incompetent and divided. The state of the world. Misperceptions, misinformation and just plain poor analysis. There are tremendous opportunities for the Left to make political gains. But if they don’t abandon the type of ideas and language that is exemplified by Habermas’s latest entreaty and if they don’t undermine the likes of Lagarde and the Remainers (the pan-Europe contingent) then they will, once again, miss the boat. 

In my recent book (with Thomas Fazi) – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – a central organising concept is that a progressive future is only possible if progressive citizens do two things:

1. Learn how the monetary system operates and understand the capacity of the currency issuer and the opportunities and constraints that the government has.In other words, educate ourselves so that we have the capacity to refute the neoliberal lies that sustains the current system that has seen progressive outcomes diminish markedly.

2. Take control of the political process and expunge neoliberal factions from progressive political parties (like the Blairites in the British Labour Party, almost all the Australian Labor Party, the Wall-Street embedded elites in the US Democrats, much of the traditional machinery of the European Socialist parties etc).Reclaiming the state is about reclaiming the legislative and regulative capacity of the nation state so that it is directed at advancing well being for the many rather than the few, to steal Jeremy Corbyn’s so excellent catch-cry....

For those to whom MMT may be new, it is important to realize that the operational description of monetary systems, being purely descriptive, is value-neutral and doesn't favor any political point of view or value system. From the aspect of operational description, MMT simply sets forth the institutional arrangements of different monetary systems and explains the fiscal space that is avialable based on these arrangements, which are mostly legally established and therefore subject to the policy decisions of legislative bodies. Therefore, they can be changed by the same bodies that created them as well as interpreted by administrators, regulators and courts.

When the data is analyzed and explained with respect to economics, it gets interpreted in terms of assigning causation to various variables as well as in parametrizing models. Here there is disagreement among economists, which gives rise to competing theories, which can be evaluated by comparing model to data, both economic data and institutional arrangements.

For example, if a model presumed operations under a different monetary system than the current one it is unlikely to be a faithful model worth of trust in either forecasting or policymaking. In addition, if causation is improperly imputed, the model will not be representational of what it purports to represent.

MMT from the vantage of theory is a so-called Keynesian model since it prioritized full employment. In this sense, MMT theory is considered to be on the left side of the political spectrum.

Those who recognize the correctness of operational analysis of MMT may take any political position that is consistent with the principles of the operational description. Those that accept the theory as well are likely to fall on the left of the political spectrum in prioritizing full employment.

However, those who accept all the aspects of MMT as both an operational description and a macroeconomic theory can be properly categorized as being "MMT." Here, there is leeway in both how the theory can be used to formulate optimal policy in various countries, as well as in the strategy for presenting MMT as a macroeconomic paradigm or framework for policy formulation and arguing for policy options compatible with it.

Bill Mitchell – billy blog
Elements in a strategy for the Left
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Dirk Ehnts — “Those who love Europe should be able to criticize Europe”

Pertinent Wynne Godley quote. (The headline quote is Macron.)

econoblog 101
“Those who love Europe should be able to criticize Europe”
Dirk Ehnts | Lecturer at Bard College Berlin

Serban V.C. Enache — Bulgaria and the Euro — How Mosler Bonds could help

MMT-based analysis and policy advice. Short.

Splice Today
Bulgaria and the Euro — How Mosler Bonds could help.
Serban V.C. Enache

Edward Harrison — The negotiations over Greece aren’t about Greece

Earlier today, I was listening to an interview with IMF head Christine Lagarde dance around the issue of the unsustainability of Greece’s debt load. And she said something very telling. She said that debt haircuts were not on the table but that maturity extensions and interest rate reductions were, but only AFTER Greece implemented reforms demanded by the Troika.
What’s important to realize when Lagarde says this is that although she’s talking about Greece, the negotiations with Greece are not really about Greece itself per se. They are about the maintaining or imposing an economic paradigm for every country in the EU that Greece was not meeting – and this is a paradigm that the IMF supports as much as the ECB and the EU. Greece is just being used as an abject lessons for other larger EU economies.
Think of it this way: 25 years ago, the EU signed on to the idea of a single currency in Maastricht. The question marks at the time were Belgium and Italy – Italy because of its constant currency devaluations and Belgium because of high government debt loads. The EU figured out how to deal with Belgium and Italy by creating the stability and growth pact which said that all member states had to keep their deficits under 3% and get their debt under 60%, or at least moving in that direction. Underneath these simple rules lies a whole economic ideology though. And that orthodoxy says long-term growth and a stable currency are best maintained by liberalized free markets and fiscal discipline.…

"Liberalized free markets and fiscal discipline" is neoliberalism in a nutshell.

"Liberalized free markets" means minimized government "intrusion" in the form of regulation and oversight, along with privatization of state assets ("asset stripping").

"Fiscal discipline" means government finance based on "sound money" that limits a government's fiscal space in economic policy and thereby constrains its fiscal policy. This is tantamount to operating as if on a gold standard.

Credit Writedowns
The negotiations over Greece aren’t about Greece
Edward Harrison

Mark Weisbrot — The Deep Economic Roots of Italy’s Political Troubles

In one important sense there are similarities between the rise of Trump and the fall of Renzi. Both are the result of the long-term failure of neoliberal policies implemented by the major political actors. In both cases, the center-left lost a big part of its working and middle-class base because it was jointly responsible for this failure.

In the US, the neoliberal era was launched “big league” by Ronald Reagan, but Bill Clinton became a co-owner by bringing us NAFTA, the WTO, financial deregulation, and other neoliberal structural reforms that have done permanent damage.

In Italy there have also been neoliberal reforms since the 1980s, but the most devastating was adopting the euro in 1999. Now you might think that nothing could be worse than having to say the words “President Trump,” but adopting the euro put Italians in an even worse jam. They lost control over their most important macroeconomic policies (monetary, fiscal, and exchange rate), and gave it to some really wrong people in the European Commission, the European Central Bank (ECB), the Eurogroup of Finance Ministers, and the IMF.

Counterpunch

The Deep Economic Roots of Italy’s Political Troubles

Mark Weisbrot

Nobel economics prize winner: ‘The euro was a mistake’

The European Union should embark on a process of decentralisation and return certain areas of decision making to the member states if it wants to survive and thrive, according to Nobel Memorial Prize in Economic Sciences winner Oliver Hart.…

Hart argued that “the euro was an mistake” and said that it’s an opinion that he has maintained ever since the monetary union was first introduced.

The economist added that it “wouldn’t be a sad thing at all” if in the future Europe abandoned the single currency and that the British were “very clever” to stay out of it.

EurActiv
Nobel economics prize winner: ‘The euro was a mistake’
Carmen Rodríguez
Translated By Samuel Morgan

Mark Blyth — The Future of the Euro (After Triaging, for the Moment at least) Greece

While the Greek crisis has occupied much attention in recent weeks, in terms of the Eurozone’s longevity, the Greek crisis will prove to be a sideshow. Greece’s threat to the Euro, once Finance Minister Schaüble’s “temporary exit” was unveiled, was reduced to questioning whether a currency union ‘with exits’ is still a currency union? The short answer is yes, it still is, and it shall remain so. If one accepts that the only Eurozone economy that is bankrupt is Greece, and that Greece will be treated as a ward of the Union for the foreseeable future, then with the rest of the Eurozone finally in recovery thanks to a de facto end to austerity policies via massive central bank interventions, the Future of the Euro, at least in the medium term, seems assured.

Yet according to much academic commentary, the Euro’s weakness lies in Europe’s fractured institutional design, rather than in its Greek entanglements or its exit vulnerabilities. Upon such a view the unexpected depth of the recession was caused by a lack of common fiscal institutions, a banking union, common deposit insurance, and a genuine Euro bond. So when the crisis hit, deprived of institutions that would have acted as surrogates for domestic inflation or devaluation, the Eurozone economies were forced to adjust internally and simultaneously, and austerity became the only game in town. Yet despite the depth of the recession, the Eurozone has made great progress since 2010, with, for example, the construction of the fiscal compact and the banking union. But fragilities remain because of these incomplete institutions.

There is much to commend in this view. It is far from wrong. But it may be flawed as a guide to the Euro’s future since it fails to take into account one very important factor. Once the Euro was introduced, what was once a political union based around ‘the big five’ of Germany, France, Italy, Spain and the United Kingdom, became a far more diverse economic union of 27 members. Yet within this apparent cacophony of interests and agendas we can see a new Europe emerging from the crisis where the dividing line will shift from North versus South to those that can run consistent current account surpluses and those who cannot. Those who can will prosper with the Euro. Those that cannot - deprived of their own currency - will have to keep making painful internal devaluations, or will have to head for the exit.

The kicker.

Given that domestic demand is given short shrift in Eurozone economic policymaking, the long-term future of the Euro rests upon the ability of member states to compete with the Americans and the Asians in global export markets. In such a world domestic demand necessarily plays second fiddle to price stability. Specifically, as the Asian countries continue to move up the product ladder and the Americans continue to dominate the top end of the value chain, the ability of export-led Europe to prosper depends upon continual product quality improvement tied to price stability, and in this regard the recent article by Prof. Schuknecht, the Chief Economist of the German Federal Finance Ministry, in Süddeutsche Zeitung is correct. Keynesian style reflation undermines this policy mix because in an export-led economy you need someone else to stimulate while you control prices and wages. Boosting wages and prices simply makes your exports more expensive. In such a world the Euro has very different effects on different countries, and blocs of countries.…

"It's the asymmetry, stupid."

With the EZ, Japan and China being net exporters, the global economy relies on the rest of the world running corresponding deficits. The US runs a chronic trade deficit that chiefly supporting this. The question is therefore how long the USD zone can soak up the production in excess of domestic demand in the EUR, JPY and CNY zones when the US economic policy is focused on reducing the fiscal deficit.

…this new system may be robust locally but fragile globally. After all, it relies upon everyone else not having an excess of savings over investment. This new Europe is effectively free riding of consumer spending elsewhere, which leaves its economic fate in the hands of others. With the Asians and the Europeans all exporting simultaneously, if the remainder of the world stops consuming [read US], then the whole system could come off the rails rather quickly.

In sum, the Euro is quite secure from Greek defaults and British exits and other near term risks. But its own new growth model may prove to be its weakest link over the longer term.

Süddeutsche Zeitung

The Future of the Euro (After Triaging, for the Moment at least) Greece

Mark Blyth | Eastman Professor of Political Economy, Brown University

Ramanan — Federal Government And Regional Balance Of Payments

To summarize, the point of the above analysis is that the financial sector as a whole cannot achieve this on its own. It takes a federal government to not only affect demand in all regions but also keep their debts in check. The workings of finances of a federal government affects the asset and liability positions of any region as a whole. The financial sector cannot take up the task of a federal government.

The Case of Concerted Action
Federal Government And Regional Balance Of Payments

Ramanan

Victoria Panfilova — EAEU Currency Union and De-dollarization

Nothing on the details of how it is actually going to work.

New Eastern Outlook

EAEU Currency Union and De-dollarization

Victoria Panfilova, columnist for Nezavisimaya Gazeta

First appeared: http://journal-neo.org/2015/04/02/rus-valyutny-j-soyuz-eae-s-i-dedolarizatsiya/

Ed Dolan — Does Putin’s Proposed Eurasian Currency Union Make Sense?

Does a common currency for the EAEU make sense? Not in economic terms, but perhaps there is a political subtext that makes the proposal more understandable....

All this leaves us wondering what Putin is thinking as he pushes the seemingly unpromising idea of an EAEU currency union. I see two possibilities.
One is that neither Putin nor his advisors have a good grasp of economics. The marginalization of most of the sounder economic thinkers that he listened to earlier in his Presidency favors this interpretation.

The other possibility is that he understands that a currency union among a structurally diverse grouping of sovereign states is a bad idea, but he thinks that he can do something about that pesky problem of sovereignty. In this interpretation, the EAEU currency union is just a foot in the door. The ultimate project is for bringing the ruble to Kazakhstan, Belarus and Armenia—perhaps ultimately to Ukraine, Latvia, and beyond—in the same way he brought the ruble to Crimea.

Kazakh President Nursultan Nazarbayev and Belarus President Alexander Lukashenko, who were present at the meeting with Putin, were reportedly cool to the idea of a currency union. Neither of them is an economist, but both are wily political operators. It is likely that they are aware of the threat to their countries’ sovereignty inherent in the project. Time will tell if they are able to stand up to Putin.

When all is said and done, currency unions are about political integration more than economic benefit, since they involve limitation of national sovereignty in favor of the institutional arrangements of the union. As we are seeing in the case of the EU. It's also the case with federalization, which was a big issue at the time of the founding of the United States of America. Currency unions can be highly successful or a disaster, depending more on political interests than economic ones.

The way the world order is emerging as a result of globalization is that several political entities will dominate socially, politically and economically because of their sheer size and level of organization — North America (the US and Canada), China, and India. Therefore, there is pressure on other blocs to cooperate in order to have a comparable seat at the table. This was one the reasons for the creation of the EU and EZ, for example. Since the collapse of the USSR, it makes sense for countries of the region to do the same rather than be sitting ducks for colonization, relegated to providing natural resources and cheap labor to the rich and powerful blocs, in the process of globalization. Latin America is awakening to this also, as is Africa.

Ed Dolan's Econ Blog
Does Putin’s Proposed Eurasian Currency Union Make Sense?

Ed Dolan

Lord Keynes — Greece promises to Balance Budget: What the hell just happened?

Any government that promises to remain within the EU can do nothing. The government has to credibly threaten to leave the EU, and maybe even take unilateral steps like suspending loan re-payments and implementing capital controls. The EU can clearly humiliate poor little Greece, but what happens when voters in Spain, Italy or even France act on their hatred of the austerity and their governments start to listen?

I would go further and say that there is no future in the EMU. Europe is not going to go forward to institute either a political union or even a fiscal union. The project is doomed and the faster than countries recognize this and bail, the less their populations will suffer and the threat of conflict in Europe will be reduced.


The Continental Europeans need also to recognize that the US and UK are run by Wall Street and the City, and act accordingly.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Greece promises to Balance Budget: What the hell just happened?
Lord Keynes

Lars P. Syll — Wynne Godley on the euro project

If Europe is not to have a full-scale budget of its own under the new arrangements it will still have, by default, a fiscal stance of its own made up of the individual budgets of component states. The danger, then, is that the budgetary restraint to which governments are individually committed will impart a disinflationary bias that locks Europe as a whole into a depression it is powerless to lift.

Lars P. Syll’s Blog
Wynne Godley on the euro project
Lars P. Syll | Professor, Malmo University

Ambrose Evans-Pritchard — EU has squandered last chance to make euro workable, warns Ex-Bundesbank chief

Forward or forget it.

The former head of the German Bundesbank has warned that the European Central Bank (ECB) will not succeed in raising inflation for years to come and is almost powerless to revive the fortunes of the eurozone on its own. 

Axel Weber, now chairman of UBS and widely-regarded as Europe's most influential private banker, said Europe's leaders had squandered the chance to rebuild the eurozone's foundations when the going was good and markets were calm. 

In an ominous sign, he appeared to lose confidence in the euro altogether, cautioning that monetary union will be tested repeatedly and may not survive unless EMU leaders agree to bite the bullet on full fiscal and political union.…

Mr Weber warned that central banks are pursuing policies in a narrow self-interest without much regard for the global knock-on effects, though he stopped short of calling it a currency war. "The international system at the moment is seriously unanchored," he said. 

The effect is finally ricocheting back into the US in the form of a surging dollar and rising risks in the US high-yield debt market. Mr Weber said the Federal Reserve may not be able to tighten policy or raise rates as soon as the markets seem to expect. "I don't think the Fed can continue on the path announced," he said.

The Telegraph
EU has squandered last chance to make euro workable, warns Ex-Bundesbank chief
Ambrose Evans-Pritchard

Peter Martin — The Euro could work so why doesn’t it?

Arguably, it did work reasonably well for the first few years of its public existence from 2002 onwards, but now, unarguably, it does not. Recession and high levels unemployment is the norm, not just in the peripheral countries of Spain, Greece, Portugal, Ireland, Poland, etc but increasingly in the original group of six too. Italy and France are both experiencing double digit levels of unemployment; and the problem is now spreading to Germany itself, as its export markets in the Eurozone start to dry up. The high levels of unemployment in the peripheral regions of the Eurozone naturally leads to increased levels of migration to other areas of the EU which are performing better. Whatever we feel should be the case, our observations tell us that this is causing social and political problems too, especially in the UK, which we would be foolish to ignore. 

There are many theories offered to explain the origins of the problem.…

Modern Monetary Theory: Real Economics
The Euro could work so why doesn’t it?
Peter Martin

Bill Mitchell — A rogue nation is needed to exit the Eurozone

I plan to send my final manuscript for my Eurozone book to the publishers tonight. I have some final checks to make on the 390 pages. I hope it will be published in both English and Italian later in the year. Obviously I will promote it here once it is ready. The book contends that the Eurozone is structurally biased towards stagnation because of the neo-liberal rules that constrain national governments from dealing with large spending collapses with appropriately scaled fiscal responses. The crisis in now into its 6th year and there is little sign that the stagnation is over. Indeed, the latest data would suggest that some of its largest economies are going backwards still. Italy has just announced it is back in recession and factory orders to Germany have plunged. I have been saying it for years but repetition is no sin – they should dismantle the currency union in an orderly manner and allow the national governments to return to growth in their own way. The nations are incapable of doing that collectively given the neo-liberal Groupthink that has them in a vice. So, a rogue nation is needed to break out of the straitjacket and provide a blueprint for the others. Italy should be that nation. In many ways it has panache and flair – it is time to show it in this specific way.

Bill Mitchell – billy blog
A rogue nation is needed to exit the Eurozone
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Deflation.

The layperson often thinks that falling price levels are a good thing. But the reality is that deflation is incredibly damaging to an economy. Why is that so? There are several reasons why an economy wants to avoid deflation. 

First, debtors are hit with rising real debt burdens and falling asset prices. Creditors gain but the overall impact on aggregate spending is negative because debtors cut their spending by more than creditors increase theirs. In turn, this can promote further deflation and a spiral into depression. 

Second, the falling asset prices, particularly home values, lead to bankruptcies and sharp decreases in mobility as workers get locked into housing they can not sell without massive losses. In such cases, even if the unemployed worker desired to move elsewhere in search of work, their housing situation makes that nigh on impossible. 

Third, deflation usually only occurs when there is mass unemployment. 

Fourth, falling inflation leading to deflation engenders expectations of further price falls, which has two negative impacts. Consumers and firms will postpone spending in the hope they can get the product cheaper later on. Further, people postpone decisions to borrow because there are no losses involved in holding cash balances (the real value rises) and it is reasonable to assume interest rates will be cut thus making loans cheaper in the future. 

All of these impacts reinforce the deflationary spiral downwards, building on each other to make matters worse.

Encouraged By Their "Success" In Europe, European Investors Position East Africa For Looting Too

   (Commentary posted by Roger Erickson)



Whoa!

This is quite a story. Not only is the whole financial system WAYYYYYY more trouble than it's worth, the euro system is the worst of the worst, including deadly trouble.

Looting Rwanda is what Davos touts as Euro investing options?

The confluence of statements in this Rwanda story also implies a bevy of Rwandan elites eager to sell the rest of their citizens to the highest bidders. (Those bidders will also throw in assassinations, gratis, as a show of good will? Wow!)

This is so worth reading that a few comments are posted in-line [bold text].

Rwanda emerges as East Africa’s investment gateway

Rwanda’s finance minister Claver Gatete waxes lyrical over the country’s bid to become an international-investment hub for the budding East African Community and defends the administration’s security policy.

Claver Gatete, Rwanda’s minister of finance, has but only a few minutes to spare on the phone with Euromoney as he darts from one meeting to another at this year’s World Economic Forum in Davos, Switzerland. The minister is upbeat as investors praise the administration’s deft stewardship of the economy, which is rapidly entrenching its status as an innovative hub for central and east Africa. Gatete’s gallivanting zeal as the country’s chief sherpa on the global economic stage is designed to send a clear message to the international investment community: Rwanda is open to global business.

The Davos exposure comes as Rwanda braces for a landmark economic event in May – the annual African Development Bank forum. Gatete says the event will prove a watershed in the country’s economic rehabilitation in its post-conflict age. “Having the forum in Rwanda this year is a vote of confidence for us,” he says. “It shows the region and the rest of the international community that we are capable of successfully hosting such a central event in African development.”

Rwanda has proven itself to be an extraordinary African success story relative to expectations in 1995. Although there was a slight slowdown in economic growth in 2013, between 2001 and 2012, real GDP growth averaged 8.1% per year and, between 2006 and 2011, an estimated one million people were pulled out of poverty. Underscoring the country’s economic ascent, the Kigali Convention Centre, an impressive glass dome that will become a focal point of the city upon completion, was financed by a successful Eurobond issue in April 2013.

The debut issue was priced at the tighter end to yield 6.875% and attracted a $3.5 billion order book – more than eight-and-a-half times the issue size and more than half the country’s GDP. The conference centre will house a five-star hotel with 292 rooms, a large conference room with a capacity to hold 2,600 people, as well as 24,000 square metres of office space.

The administration hopes the China-backed project won’t in the coming years be seen as an under-used vainglorious construction effort. 

[rge: Good luck with that.] 

Instead, it’s hoped it will be seen as a proactive capacity-building project as Rwanda attracts greater FDI flows, buoyed by its reputation as a regional business and transport hub for the East African Community.

Early signs are encouraging. Last year, the World Bank ranked Rwanda – a commodity-poor landlocked nation – the second-easiest country to conduct business in sub-Saharan Africa, after Mauritius.

[rge: That defines success? Or could that WB ranking be calling looters to Rwanda? After all, "pro-active" capacity building has a 'sterling' track record. Even in China. :) ]

Globally, Rwanda is ranked at 32. The Rwanda Development Board has drastically cut the time it takes to register a business in the country: it’s possible to be in and out of their offices with all necessary licences in less than six hours. 

[rge: For foreigners only, or local citizens as well? They don't say.]

However, questions over president Paul Kagame’s human-rights record, and tolerance of dissent continues to dog the administration, testing international support. In the latter part of 2012, Kagame was accused of supporting the Democratic Republic of Congo’s M23 rebels in the Great Lakes conflict. Gatete is anxious to reject any accusations of collusion. “It was proven that the government of Rwanda had not provided any assistance to [the M23],” he says. “The country got all of its aid back, all bilateral and multilateral agreements were restored, and donors are continuing to offer their support with no exceptions. As I have said, confidence in Rwanda – politically and economically – remains firm.” He adds: “We work closely with the international community to reach a peaceful solution in the Congo, nothing more.”

However, Rwanda’s international standing came under the spotlight again recently, after the US criticized scathing comments made by Kagame, who claimed that political opponents ought to be treated harshly. The remark came after one of his exiled critics, Patrick Karegeya – a former director of external intelligence and a former opposition leader – was found dead in a hotel room in Johannesburg, raising questions about the administration’s involvement. “We didn’t do it, but my question is: shouldn’t we have done it?” said Kagame at prayer breakfast on January 12, as was reported by Reuters.

Says Gatete: “Karegeya was part of the opposition and was responsible for setting off bombs in Kigali, but the death had nothing to do with us and we will leave the South African government to look into the case. All Kagame is trying to do is protect the country.” Anxious to shift back into Rwanda’s international-investment bid, Gatete cites two landmark projects that highlight the country’s dynamism. “One of the most interesting [projects] is Visa International’s project here to roll out mobile payments and transfers,” he says. “If it’s successful, it will be rolled out in the rest of the region. “The East African Commodities Exchange is another example. Rwanda was chosen for the site of this despite its size and because of its insight into business. Rwanda is a good place to do trials such as this one.

We are a government that international companies can trust and it’s a place where business runs smoothly.”

[rge: A place even Al Capone couldn't resist? With the way paved by missionaries of finance, hosting prayer meetings?]

The exchange aims to increase liquidity and offer a commodities market for 130 million people in the region. One of its goals is to create a platform for smaller, regional producers and give them access to futures and options – an ambitious project given nascent financial infrastructure, limited listed equity products and issuers, as well as illiquidity. Nevertheless, the commodities exchange is another step towards East African integration, aimed squarely at the economies of scale.

“We already have freedom of movement and freedom to seek employment within the region, which helps business in Rwanda and elsewhere,” says Gatete. “We already have certain things in place, including a customs union and a common market. “The next phase will be a monetary union and a single currency.”

[rge: You just HAD to expect that that was coming at some point, given input from the looters in Brussels.]

Few consider the integration project will be plain sailing, but Gatete’s enterprising zeal highlights how Rwanda – the small country with big ambitions – represents a competitive challenge and opportunity for its reform-shy regional neighbours.

[rge: Right! "Painful structural adjustments will be necessary." Just like in Greece. Maybe Rwanda's "reform-shy" neighbors are right to hunker down & hope to survive another round of colonialism. Evolutionary resiliency is, after all, built through maintenance of diversity, not the brittle "efficiency" of over-adapting everything to transient contexts. Every time "we're all (anything-uniform) now," we're mostly all dead just one context later, when the Luddites offer their standard excuse that "no Luddite could have predicted this!"]

Financial Times — The economists’ warning

ThIt is essential to realise that if the European authorities continue with policies of austerity and rely on structural reforms alone to restore balance, the fate of the euro will be sealed. The experience of the single currency will come to an end with repercussions on the continued existence of the European single market. In the absence of conditions for a reform of the financial system and a monetary and fiscal policy making it possible to develop a plan to revitalise public and private investment, counter the inequalities of income and between areas, and increase employment in the peripheral countries of the Union, the political decision makers will be left with nothing other than a crucial choice of alternative ways out of the euro.

Real-World Economics Review Blog
The economists’ warning
Financial Times, September 23 2013
Emiliano Brancaccio and Riccardo Realfonzo (Sannio University, promoters of “the economists’ warning”), Philip Arestis (University of Cambridge), Wendy Carlin (University College of London), Giuseppe Fontana (Leeds and Sannio Universities), James Galbraith (University of Texas), Mauro Gallegati (Università Politecnica delle Marche), Eckhard Hein (Berlin School of Economics and Law), Alan Kirman (University of Aix-Marseille III), Jan Kregel (University of Tallin), Heinz Kurz (Graz University), Alfonso Palacio-Vera (Universidad Complutense Madrid), Dimitri Papadimitriou (Levy Economics Institute), Pascal Petit (Université de Paris Nord), Dani Rodrik (Institute for Advanced Study, Princeton), Willi Semmler (New School University, New York), Engelbert Stockhammer (Kingston University), Tony Thirlwall (University of Kent).

Simon Wren-Lewis — Scotland's future exchange rate regime

The real problem for Scotland is that, in forming a sterling currency union, it will be dealing with a government that thinks like Germany. What is worse, although Germany can sometimes be persuaded to go against its austerity instincts for the sake of European unity, after an independence vote rUK is unlikely to let its heart strings be pulled in a similar way! The problem for Scotland is that the rUK can provide something that in fact costs it very little, but the absence of which would cost Scotland a great deal, so rUK will be able to ask for a high price. Unless the new Scottish government is prepared to pay for a Bank of England LOLR role with some of its oil revenues, it may find it has nothing to bargain with. If no agreement can be found, the Treasury paper is quite right to conclude that using sterling unilaterally would not be attractive for Scotland. So rather than accept damaging fiscal restrictions, the new Scottish government may end up with its own currency after all.

mainly macro
Scotland's future exchange rate regime
Simon Wren-Lewis | Professor of Economics, Oxford University