[y66]

From whatshisname's blog:

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Henry Blodget says that the economic debate is over; the austerians have lost and whatshisname has won. And it’s definitely true that in sheer intellectual terms, this is looking like an epic rout. The main economic studies that supposedly justified the austerian position have imploded; inflation has stayed low; the bond vigilantes have failed to make an appearance; the actual economic effects of austerity have tracked almost exactly what Keynesians predicted.

Meanwhile, economies shrink and unemployment soars.

[y66]

From Joe Weisenthal via Krugman

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Evercore chairman Roger Altman was on CNBC this morning arguing that austerity in Europe was not a "choice" but rather something that was forced onto countries by raging credit markets that were rebelling against high debt loads.

This is incorrect, and provably so.

Here's a chart going back 3 years of Italian borrowing costs (the yield on the 10-year Italian bond).



There were two big peaks in the country's borrowing costs. The first was in late 2011, and the second was in summer 2012.

Something important happened at both of those peaks: The European Central Bank stepped up and began to backstop the entire Eurozone financial system.

First, in late 2011, the ECB announced its 3-year LTRO program, which was a scheme that let banks pledge all sorts of collateral in exchange for cheap liquidity. These massively eased strains on the banks.
Borrowing costs then fell sharply.

Then in mid-2012, Mario Draghi announced the OMT program, which is a promise to backstop government bond markets in exchange for outside budget oversight. Borrowing costs fell sharply again, and now Italian borrowing is at record lows.

So we can trace the two peaks of Eurozone debt stress directly to two times the ECB intervened. Austerity has had nothing to do with the improvement in borrowing costs.

This point can further be proven by making two additional observations. Italy replaced its Prime Minister in late 2011, booting out Berlusconi and introducing the reformist Mario Monti, who had the political clout to introduce austerity. But obviously that swap did nothing, as borrowing costs surged through the summer of 2012, before the ECB intervened in 2012.

And then furthermore, there's been a big backlash lately against austerity (in France, in Italy, etc.) and the markets haven't moved at all, and the reason for this is because the ECB is there, ready to stand backstopping governments.

So this is not about markets. This is about ECB actions. When the ECB stepped up and performed the role of other big central banks (Bank of England, the Fed, Bank of Japan) and started backstopping the system, the debt crisis went away. Cutting spending had nothing to do with it.

[mike777]

y66, on 2013-May-10, 18:28, said:

From Joe Weisenthal via Krugman

????


so what is the future?.....I mean unknown? that is nothing..


where is your money, what are you betting on and why?


If you don't have a lot of money in this ok.........got it but please make it clear you have little or no money here.

[FM75]

http://en.wikipedia....n_Currency_Unit

The future of the euro - probably similar result. Economics and politics do not mix very well, especially when the organizations involved are different.

Expect the next problem - the tipping point - to be France. Before 2019?

I would say before 2019. But that would probably be a topic for a different thread.

[blackshoe]

I was talking to Chicken Little the other day, and he says the global economy is going to collapse before the year is out. By this time next year we'll be taking wheelbarrows full of dollars to the store just for a loaf of bread. Assuming we can get past the rioters. Can you say "Weimar Republic"?

[y66]

Young and Educated in Europe, but Desperate for Jobs

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MADRID — Alba Méndez, a 24-year-old with a master’s degree in sociology, sprang out of bed nervously one recent morning, carefully put on makeup and styled her hair. Her thin hands trembled as she clutched her résumé on her way out of the tiny room where a friend allows her to stay rent free.

She had an interview that day for a job at a supermarket. It was nothing like the kind of professional career she thought she would have after finishing her education. But it was a rare flicker of opportunity after a series of temporary positions, applications that went nowhere and employers who increasingly demanded that young people work long, unpaid stretches just to be considered for something permanent.

Her parents were imploring her to return home to the Canary Islands to help run her father’s fruit business. It was a sign of the times, though, that even her own father probably would not be able to afford to pay her.

“We’re in a situation that is beyond our control,” Ms. Méndez said. “But that doesn’t stop the feelings of guilt. On the bad days, it’s really hard to get out of bed. I ask myself, ‘What did I do wrong?' ”

The question is being asked by millions of young Europeans. Five years after the economic crisis struck the Continent, youth unemployment has climbed to staggering levels in many countries: in September, 56 percent in Spain for those 24 and younger, 57 percent in Greece, 40 percent in Italy, 37 percent in Portugal and 28 percent in Ireland. For people 25 to 30, the rates are half to two-thirds as high and rising.

Those are Great Depression-like rates of unemployment, and there is no sign that European economies, still barely emerging from recession, are about to generate the jobs necessary to bring those Europeans into the work force soon, perhaps in their lifetimes.

[y66]

From Miles Kimble via Krugman

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At an International Monetary Fund Conference in honor of former Bank of Israel Governor—and earlier IMF chief economist—Stan Fischer on Nov. 8, Larry Summers made a strong bid for continued relevance to economic policy-making as a private citizen with a trenchant speech.

http://www.youtube.c...d&v=KYpVzBbQIX0

Summers begins by crediting Fischer for inspiring him to be a macroeconomist, saying this of Fischer’s graduate course on Monetary Economics at MIT: “It was a remarkable intellectual experience. And it was remarkable also because Stan never lost sight of the fact that this was not just an intellectual game: getting these questions right made a profound difference in the lives of nations and their peoples.”

After his praise of Fischer, Summers gives a conventional account of the financial crisis in the fall of 2008 and the largely successful efforts to contain that crisis. But the rest of his speech goes in surprising directions. Summers emphasizes the possibility of “secular stagnation” like that the Japanese economy has suffered in the last two decades. The extent of Japan’s stagnation is breathtaking: In 2013, the Japanese economy is only half the size economists in the 1990’s predicted it would be by now. Even here in the US, GDP is falling further and further behind what we would have predicted just a few years back, and the fraction of the population that has a job has hardly recovered at all in the past four years, despite the fact that the financial crisis was well-contained by November 2009.

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Krugman: What Larry did at the IMF wasn’t just give an interesting speech. He laid down what amounts to a very radical manifesto. And I very much fear that he may be right.

[FM75]

Now that this has popped back onto the board... What is the time frame for the OP? months, years, decades?

If the Euro exists in 2050 (off-chance I will be alive so see this prediction), the Euro will be the official currency of the "Euro" nation-state.

[Aberlour10]

Five years after.

US-Dollar is strong, Euro relatively weak, Greece struggles still on the edge to the exit...Ireland seems to be save,. Several southern countries are stabilized after hard cuts in their social budgets..

And so celebrates Occupy Movement the opening of the new ECB towers in Frankfurt today

[y66]

From Europe’s Many Economic Disasters

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It’s depressing thinking about Greece these days, so let’s talk about something else, O.K.? Let’s talk, for starters, about Finland, which couldn’t be more different from that corrupt, irresponsible country to the south. Finland is a model European citizen; it has honest government, sound finances and a solid credit rating, which lets it borrow money at incredibly low interest rates.

It’s also in the eighth year of a slump that has cut real gross domestic product per capita by 10 percent and shows no sign of ending. In fact, if it weren’t for the nightmare in southern Europe, the troubles facing the Finnish economy might well be seen as an epic disaster.

And Finland isn’t alone. It’s part of an arc of economic decline that extends across northern Europe through Denmark — which isn’t on the euro, but is managing its money as if it were — to the Netherlands. All of these countries are, by the way, doing much worse than France, whose economy gets terrible press from journalists who hate its strong social safety net, but it has actually held up better than almost every other European nation except Germany.

And what about southern Europe outside Greece? European officials have been hyping the recovery in Spain, which did everything it was supposed to do and whose economy has finally started to grow again and even to create jobs. But success, European-style, means an unemployment rate that is still almost 23 percent and real income per capita that is still down 7 percent from its pre-crisis level. Portugal has also obediently implemented harsh austerity — and is 6 percent poorer than it used to be.

Why are there so many economic disasters in Europe? Actually, what’s striking at this point is how much the origin stories of European crises differ. Yes, the Greek government borrowed too much. But the Spanish government didn’t — Spain’s story is all about private lending and a housing bubble. And Finland’s story doesn’t involve debt at all. It is, instead, about weak demand for forest products, still a major national export, and the stumbles of Finnish manufacturing, in particular of its erstwhile national champion Nokia.

What all of these economies have in common, however, is that by joining the eurozone they put themselves into an economic straitjacket. Finland had a very severe economic crisis at the end of the 1980s — much worse, at the beginning, than what it’s going through now. But it was able to engineer a fairly quick recovery in large part by sharply devaluing its currency, making its exports more competitive. This time, unfortunately, it had no currency to devalue. And the same goes for Europe’s other trouble spots.

Does this mean that creating the euro was a mistake? Well, yes. But that’s not the same as saying that it should be eliminated now that it exists. The urgent thing now is to loosen that straitjacket. This would involve action on multiple fronts, from a unified system of bank guarantees to a willingness to offer debt relief for countries where debt is the problem. It would also involve creating a more favorable overall environment for countries trying to adjust to bad luck by renouncing excessive austerity and doing everything possible to raise Europe’s underlying inflation rate — currently below 1 percent — at least back up to the official target of 2 percent.

But there are many European officials and politicians who are opposed to anything and everything that might make the euro workable, who still believe that all would be well if everyone exhibited sufficient discipline. And that’s why there is even more at stake in Sunday’s Greek referendum than most observers realize.

[helene_t]

I am probably missing something but the behaviour of Merkel (whom I otherwise have a lot of respect for) etc. is beyond comprehension for me.

That various Greek governments, in particular the conservative government repsonsible for cooking the statistics to get on baord the Euro, wanted to get into the Euro in order to be able to borrow cheaply so they could have a great party and leaving the debt to their successors I can sorta understand. Maybe they thought the borrowed bonanza would stimululate the economy enough to make the debt sustainable. Maybe they expected to be bailed out. Maybe they just took some percentages to their private Swiss bank accounts and didn't care about the country.

That Western European banks lend money to the Greek government I can also understand. They probably expected to be bailed out. Even if not, the balance sheets would look good for a while so they could collect their bonuses and leave the headache to future bank directors.

But it is hard to see how anyone could benefit from the policies of the Trojka. It seems utterly destructive. But maybe that is exactly the point. Maybe the strategy is to destroy the Greek economy even further so that the Greek government will fall. http://www.theguardi...s-regime-change

[kenberg]

To an outsider, perhaps the most stunning part of the quoted article is "Does this mean that creating the euro was a mistake? Well, yes.". Yes, he goes on to declare it to be a mistake that has to be lived with, but he does declare it to be a mistake.

I ask: Is this a widespread view in Europe? I hadn't thought it to be.

Whether we are asking Jeb Bush about Iraq or European leaders about the Euro, the purpose in identifying mistakes is to assist us in doing better in the future. So we should ask "Was it a mistake" and, if the answer is "yes" the follow-up question is "What did we miss, what did we fail to anticipate, what should we have done instead?". Properly understanding a mistake may help in avoiding future mistakes and may help in minimizing the damage to the mistake already made.


Myself, I had not really thought of it as a mistake, although trying to have a common currency without political unification seemed like a definitely tricky undertaking.

[helene_t]

kenberg, on 2015-July-03, 06:52, said:

"Does this mean that creating the euro was a mistake? Well, yes.". Yes, he goes on to declare it to be a mistake that has to be lived with, but he does declare it to be a mistake.

I ask: Is this a widespread view in Europe? I hadn't thought it to be.

I dunno how widespread it is. Probably the popularity of the Euro goes up and down in tune to the performance of the European economy. Which is pretty poor at the moment.

Exactly what is it that was a mistake? The integration of the currencies was done in many stages. Was it a mistake to begin in the first place? Or would it have been fine if just a few dubious countries, maybe just Greece, had been left out? Note that the final step, to replace the old currencies with a common one, was not very significant from a monetary policy point of view. Denmark has already lost almost all its monetary autonomy and the fact that it technically has its own currency is mostly a symbolic thing.

My own thoughts were a bit mixed back then. I thought it took place decades too early and had expected a chaos. But the introduction of the Euro went extremely smooth and a few years later the European economies started improving which was widely attributed, at least partly, to the common currency. Until a few weeks ago I would have said that over-all the Euro has been a success.

Today I am not sure. Yes, it was a mistake that Greece was allowed to borrow so much.

[Vampyr]

I thought from the beginning that the Euro would be a mistake. I am very grateful that our government wanted no part of it.

[Mbodell]

kenberg, on 2015-July-03, 06:52, said:

To an outsider, perhaps the most stunning part of the quoted article is "Does this mean that creating the euro was a mistake? Well, yes.". Yes, he goes on to declare it to be a mistake that has to be lived with, but he does declare it to be a mistake.

I ask: Is this a widespread view in Europe? I hadn't thought it to be.

Whether we are asking Jeb Bush about Iraq or European leaders about the Euro, the purpose in identifying mistakes is to assist us in doing better in the future. So we should ask "Was it a mistake" and, if the answer is "yes" the follow-up question is "What did we miss, what did we fail to anticipate, what should we have done instead?". Properly understanding a mistake may help in avoiding future mistakes and may help in minimizing the damage to the mistake already made.


Myself, I had not really thought of it as a mistake, although trying to have a common currency without political unification seemed like a definitely tricky undertaking.

The mistake that Krugman references was to have the single currency without having the other stabilizers that can go through. In the US if Florida and Michigan are depressed and would have more easily adjusted by devaluing their currency, you have gov't transfers, social security, etc. that means that the well off folks in New York and California transfer money to Florida and Michigan to help offset the economic troubles. In Europe, the Germany people who are well off from the current currency regime don't have automatic transfers to the Euro states made worse by the current too low inflation and too high Euro exchange rate.

[mike777]

Not having the other so called "stabilizers" was not a mistake.

It is called reality. The nations were fully aware of what stabilizers were in place or not.

The nations made a judgment call to roll the dice.....in the case of Greece they lost.

All of us, I mean all of us knew this could happen...no surprise.

Knowing the downside of a common currency was known, the risk was known. Please

to claim Europe had no idea of the culture and politics of Greece is silly, just silly.
------

The Euro was and is always a gamble and people who care know it.
--------------


today Greece has the choice of bad options....but Greece always chooses bad options...that is the point....

Hemlock was the option they choose. see history

[kenberg]

Mbodell, on 2015-July-03, 19:59, said:

The mistake that Krugman references was to have the single currency without having the other stabilizers that can go through. In the US if Florida and Michigan are depressed and would have more easily adjusted by devaluing their currency, you have gov't transfers, social security, etc. that means that the well off folks in New York and California transfer money to Florida and Michigan to help offset the economic troubles. In Europe, the Germany people who are well off from the current currency regime don't have automatic transfers to the Euro states made worse by the current too low inflation and too high Euro exchange rate.

I'll put in the surrounding sentences to his remark about it being a mistake. Perhaps he has in mind what you are saying, but I don't see him actually saying it. Or maybe, when he speaks of a straightjacket, this is what he has in mind. But as I read his comments, he seems to me to be saying that the Euro itself was a mistake.

Quote

And Finland isn't alone. It's part of an arc of economic decline that extends across northern Europe through Denmark — which isn't on the euro, but is managing its money as if it were — to the Netherlands. All of these countries are, by the way, doing much worse than France, whose economy gets terrible press from journalists who hate its strong social safety net, but it has actually held up better than almost every other European nation except Germany.

And what about southern Europe outside Greece? European officials have been hyping the recovery in Spain, which did everything it was supposed to do and whose economy has finally started to grow again and even to create jobs. But success, European-style, means an unemployment rate that is still almost 23 percent and real income per capita that is still down 7 percent from its pre-crisis level. Portugal has also obediently implemented harsh austerity — and is 6 percent poorer than it used to be.

Why are there so many economic disasters in Europe? Actually, what's striking at this point is how much the origin stories of European crises differ. Yes, the Greek government borrowed too much. But the Spanish government didn't — Spain's story is all about private lending and a housing bubble. And Finland's story doesn't involve debt at all. It is, instead, about weak demand for forest products, still a major national export, and the stumbles of Finnish manufacturing, in particular of its erstwhile national champion Nokia.

At any rate, you might well be right as to what the mistake actually was. Integrating economies without political integration seems to be a challenge. Of course there is some political unification, there perhaps there could have been more except it may not have been feasible politically.

Comparing with the US, say with California transferring money to New York and Michigan: The psychology is completely different. Americans may gripe about bailouts in Detroit, but really there is a gut feeling that we are all Americans so it is ok. Not great, but ok. We would feel differently about bailing out, say, Prince Edward Island. [PEI is a random example, as far as I know they don't need bailing out.] Roughly speaking, that seems to me to be where the problem lies. Germans are Germans, Greeks are Greeks, and the idea that "everyone is a European so we will do what has to be done" is not really there. {Yes, I oversimplify, both for the US and for Europe, but there may be something in it.]

As with most things, I think finding a solution benefits everyone. So I hope that it can be done. Lacking that, I hope a way can be found for a Greek exit that does as little harm as possible to all concerned. No doubt the US would suffer ripple effects, but the real crisis is in Europe.

[Mbodell]

kenberg, on 2015-July-04, 09:29, said:

I'll put in the surrounding sentences to his remark about it being a mistake. Perhaps he has in mind what you are saying, but I don't see him actually saying it. Or maybe, when he speaks of a straightjacket, this is what he has in mind. But as I read his comments, he seems to me to be saying that the Euro itself was a mistake.
...
At any rate, you might well be right as to what the mistake actually was. Integrating economies without political integration seems to be a challenge. Of course there is some political unification, there perhaps there could have been more except it may not have been feasible politically.

There are lots and lots of Krugman (and other) articles about this. From the start of the Euro all the way to the start of the crisis and through recently.

For instance from a week ago:

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It has been obvious for some time that the creation of the euro was a terrible mistake. Europe never had the preconditions for a successful single currency — above all, the kind of fiscal and banking union that, for example, ensures that when a housing bubble in Florida bursts, Washington automatically protects seniors against any threat to their medical care or their bank deposits.

Or from three years ago:

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Let’s once again take a not at all hypothetical example, Florida after the recent housing bust. America may have a small welfare state by European standards, but it’s still pretty big, with large spending in particular on Social Security and Medicare – obviously both a big deal in Florida. These programs are, however, paid for at a national level. What this means is that if Florida suffers an asymmetric adverse shock, it will receive an automatic compensating transfer from the rest of the country: it pays less into the national budget, but this has no impact on the benefits it receives, and may even increase its benefits if they come from programs like unemployment benefits, food stamps, and Medicaid that expand in the face of economic distress.

How big is this automatic transfer? Table 2 shows some indicative numbers about Florida’s financial relations with Washington in 2007, the year before the crisis, and 2010, in the depths of crisis. Florida’s tax payments to DC fell some $33 billion; meanwhile, special federally funded unemployment insurance programs contributed some $3 billion, food stamp payments rose almost $4 billion. That’s about $40 billion in de facto transfers, some 5 percent of Florida’s GDP – and that’s surely an understatement, since there were also crisis-related increases in Medicaid and even Social Security, as more people took early retirement or applied for disability payments.

You might argue that since Florida residents are also U.S. taxpayers, we really shouldn’t count all of this as a transfer. The crucial point, however, is that the federal government does not currently face a borrowing constraint, and has very low borrowing costs. So all of this is a burden that would be a real problem if Florida were a sovereign state, but is taken off its shoulders by the fact that it isn’t.

Or from 5 years ago:

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In the United States, such shocks are cushioned by the existence of a federal government: the Social Security and Medicare checks keep being sent to Florida, even after the bubble bursts. And we adjust to a large degree with labor mobility: workers move in large numbers from depressed states to those that are doing better.

Or in 1998 (as quoted from This summary european survey paper in 2009 on why all those american economists were wrong that the Euro was problematic in its construction, right before all the problems):

Quote

for seven long years since the
signing of the Maastricht Treaty started Europe on the road to that unified currency,
critics have warned that the plan was an invitation to disaster. Indeed, the standard
scenario for an EMU collapse has been discussed so many times that it sometimes
seems to long term eurobuffs like myself as if it had already happened

So it really isn't hard for regular, or even some what regular readers (or even those who web search), to know what he means by the Euro (as constituted without other integration features) was a mistake. At the darkest, some of Krugman's writing worry that the economic collapses being forced by Germany/Troika could lead to right wing over reactions and fascism/Nazism rising up again in many parts of Europe as a direct result of these economic mistakes.

[akwoo]

I want to get some sense about some what-ifs here.

Let's suppose that Greek creditors stick to their demands. Greek banks and the Greek government partially shut down.

Now let's suppose that Tsipras publicly blames the Germans, tells Greek pensioners to march on Frankfurt (yes I think that's a better idea than Berlin) to demand their pensions, and tells Greek youth to march on Frankfurt to demand employment. I'm guessing around 100,000 Greeks start moving towards Germany, assisted in various ways by the Greek government.

What now?

(I may have some further what-ifs to some of the responses.)

[mike777]

akwoo, on 2015-July-05, 14:38, said:

I want to get some sense about some what-ifs here.

Let's suppose that Greek creditors stick to their demands. Greek banks and the Greek government partially shut down.

Now let's suppose that Tsipras publicly blames the Germans, tells Greek pensioners to march on Frankfurt (yes I think that's a better idea than Berlin) to demand their pensions, and tells Greek youth to march on Frankfurt to demand employment. I'm guessing around 100,000 Greeks start moving towards Germany, assisted in various ways by the Greek government.

What now?

(I may have some further what-ifs to some of the responses.)

Assuming these are Epaminondas's Thebans on the march I would expect the same result that Sparta suffered.