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Perma-slump and Project

by afew Thu May 29th, 2014 at 02:41:44 AM EST

Ambrose Evans-Pritchard has been consistently right about the euro, and he's right (no pun intended) again here:

Europe's centre crumbles as Socialists immolate themselves on altar of EMU - Telegraph

By a horrible twist of fate, Europe's political Left has become the enforcer of reactionary economic policies. The great socialist parties of the post-war era have been trapped by the corrosive dynamics of monetary union, apologists for mass unemployment and a 1930s deflationary regime that subtly favour the interests of elites.

He goes on to take François Hollande's performance as French President to pieces, and concludes:


Europe's centre crumbles as Socialists immolate themselves on altar of EMU - Telegraph

The French nation does not have to accept economic asphyxiation. France is the beating heart of the Europe, the one country with the civilizational stature to lead a revolt and take charge of the EMU policy machinery. But to call Germany's bluff with any credibility Mr Hollande must be willing to rock the Project to its foundations, and even to risk a rupture of the euro.

This he cannot bring himself to do. His whole political life from Mitterrand to Maastricht has been woven into European affairs. He is a prisoner of Project ideology, drilled to think that Franco-German condominium remains the lever of French power, and that the euro is what binds the two. French statesman Jean-Pierre Chevenement compares Mr Hollande's acquiesce in this ruinous course with Pierre Laval's deflation decrees in 1935 under the Gold Standard, the last time a French leader thought he had to bleed his country dry in defence of a fixed-exchange peg. It is the brutal truth.

But the Project will be rocked to its foundations. This piece was published before the results of the EP elections were known. Continuing on the same deflationary course (the "perma-slump", Evans-Pritchard calls it) will guarantee the further rise of the national-populist xenophobic far-right until it's in a position of, at least, powerful influence in a number of EU member states, including the "beating heart", and the EU itself will be hard put to it to survive. Or, before that happens, a fresh economic shock (perfectly possible) will finally blow the pro-plutocrat hard-money arrangements of the ECB out of the water.

It can't go on like this... But it can. Until the big bang.

Display:
Hollande may be formatted by the Project, but there's a day-to-day surrender to the bond vigilantes to be taken into account too. Keeping your head down and staying pals with Angela keeps those spreads down...
by afew (afew(a in a circle)eurotrib_dot_com) on Wed May 28th, 2014 at 05:59:06 AM EST
I thought the ECB keeps the spread down.

To the sorrow of many neoliberal ideologues.

Aren't bond vigilantes mostly regarded a myth nowadays?

by IM on Thu May 29th, 2014 at 11:56:46 AM EST
[ Parent ]
France has consistently had no spread problem throughout the euro crisis. Draghi's promise to buy bonds calmed the market down for the countries that were having to accept high interest rates on their bonds. It made no significant difference to France.

The day France breaks with Germany, French interest rates will jump. Whether one believes in bond vigilantes or not is irrelevant to that simple fact.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu May 29th, 2014 at 12:53:28 PM EST
[ Parent ]
That isn't a simple fact, that is just a assumption.

And it depends on the meaning of "breaking".

Neoliberals and austerity preachers have prophesied the arrival of the bond vigilantes any morning since autumn 2008. They never arrived.

by IM on Thu May 29th, 2014 at 12:55:59 PM EST
[ Parent ]
IM:
They never arrived.

That's your assumption.

As for a sharp rise in French rates in the case of an open French challenge to the euro as currently organised, it's necessarily an assumption insofar as it hasn't yet happened. But I suggest it takes on the status of fact in the mindset of the civil servants and pols involved in French government finances.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu May 29th, 2014 at 01:10:57 PM EST
[ Parent ]
In a liquidity trap, which we are in, it is simply economics. The interest rate will not durably go up, there are too much savings, too little demand and therefore too little investment. So unless you have a model to show how interest rates would go up, I would say the one doing the assuming is you.

It may of course be a matter of fact that high civil servants make this same assumption, but I don't understand why you would lend any credence to the claim on that basis. After all, they have been wrong about most everything lately. Why would they be right on this score?

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu May 29th, 2014 at 03:32:10 PM EST
[ Parent ]
This subthread began with my suggestion that fear of a jump in interest rates (aka punishment by teh markets, whether personified by "bond vigilantes" or metaphorically represented by the "invisible hand") was a factor in Holland/the government's pusillanimous stance. That's a political comment that doesn't call for an economic model.

As to how justified that fear may be, you seem to agree there would be a rise, but it would not last long. You may be right. It doesn't change my political comment.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri May 30th, 2014 at 02:06:11 AM EST
[ Parent ]
I just remarked that the "bond vigilantes " are an largely imaginary threat.
by IM on Fri May 30th, 2014 at 09:24:45 AM EST
[ Parent ]
They are very real, for any country which lacks a lender of last resort.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri May 30th, 2014 at 11:11:13 AM EST
[ Parent ]
It's interesting how much top politicians (and their policies) are driven by imaginary threats. On both sides of the Rhine.
by Bernard on Fri May 30th, 2014 at 12:53:33 PM EST
[ Parent ]
Our imaginations can provide us with reasons to do or not do anything we desire. Very convenient. Convenient imaginations conjoined with convenient consciences.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 2nd, 2014 at 07:24:16 PM EST
[ Parent ]
that France wouldn't simply challenge the Euro directly. France leaving the Euro would essentially put paid to the entire project. That's not a challenge, in my view, that is an execution.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Thu May 29th, 2014 at 03:33:31 PM EST
[ Parent ]
Here and in other parts of the thread I'm basing my comments on the (admittedly unlikely) hypothesis that France would attempt to renegotiate the euro. You say France would simply pull out. That's another hypothesis.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri May 30th, 2014 at 02:09:42 AM EST
[ Parent ]
And I base my hope on a French pull-out in 2017.

I also take Evans-Pritchard at his word when he describes Marine Le Pen's comments to him, as to being the left side of Gaullisme. I hope everyone will agree that this is far better than what we have.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Fri May 30th, 2014 at 03:42:32 PM EST
[ Parent ]
Europe has an even bigger crisis on its hands than a British exit

It is widely claimed that the Front is eurosceptic only on the surface. Perhaps, but when I asked Mrs Le Pen what she would do on her first day in office if she ever reached the Elysee Palace, her reply was trenchant. She would instruct the French Treasury to draft plans for the immediate restoration of the franc, that great symbol of emancipation from the English occupation (franc des Anglais).

She vowed to confront Europe's leaders with a stark choice at their first meeting: either to work with France for a "sortie concertee" or coordinated EMU break-up, or resist and let "financial Armageddon" run its course. "The euro ceases to exist the moment that France leaves, and that is our incredible strength. What are they going to do, send in tanks?" she said.

She said there can be no compromise with monetary union, deeming it impossible to remain a self-governing nation within the structures of EMU, and impossible to carry out the reflation policies necessary to defeat the economic slump. "The euro blocks all economic decisions. France is not a country that can accept tutelage from Brussels. We have succumbed to a spirit of slavery," she said.


We have a very, very big problem when the only politicians who even discuss the economic situation in a reality-based context are Marine Le Pen and Nigel Farage... :p

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri May 30th, 2014 at 05:12:27 PM EST
[ Parent ]
It is strange, isn't it?

Sometimes the right message comes from the wrong messengers, it's a struggle to emancipate oneself from unconscious biases.

But it's not hard to understand really, being wrong politically doesn't mean you're necessarily wrong intellectually, you can still come to some correct analyses with a shrivelled heart.

There is no real Euro-left anymore, just pusillanimous fakers, at least the truth is coming out in language the common person can understand, even if it's from bastards you would cross the street to avoid.

Finger, moon etc.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri May 30th, 2014 at 08:38:17 PM EST
[ Parent ]
As Migeru points out, Evans-Pritchard is concern-trolling, and that particular comment is probably malicious. E-P is surely not really taken in by Le Pen's posturing.

Miss Le Pen is engaged in a major facelift of her party. A change of image towards something more apparently moderate, in order to gobble up the former "Gaullist" party, the UMP, and recuperating leftist themes the better to pick up disenchanted voters of the left. Under the pancake make-up, the FN is historically the enemy of the left, and inspired by hatred of De Gaulle and Gaullism. It belongs to the classic French nationalist xenophobic extreme-right tradition, and its more immediate ancestry is Vichy, in direct line via Daddy Le Pen. Marine is Pétain's grand-daughter.

I used to know a redstar who had a mind and a memory for these things, who wouldn't have been taken in by cosmetic changes. But then, maybe he's just concern-trolling too.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat May 31st, 2014 at 01:58:46 AM EST
[ Parent ]
Why would Evans-Pritchard be concern-trolling? I'm not saying he isn't, but I don't really know anything about him and don't see why we should prima facie accept that he is.

Regarding the evolution of the economic ideas of the Front, over time they have certainly been... dynamic.

At the end of the 1970s, Le Pen refurbished his party's appeal, by breaking away from the anticapitalist heritage of Poujadism. He instead made an unambiguous commitment to popular capitalism, and started espousing an extremely market liberal and antistatist program. Issues included lower taxes, reducing state intervention, and dissolving the bureaucracy. Some scholars have even considered that the FN's 1978 program may be regarded as "Reaganite before Reagan".[133]

The party's economic policy shifted from the 1980s to the 1990s from neoliberalism to protectionism.[138] This should be seen within the framework of a changed international environment, from a battle between the Free World and communism, to one between the nationalism and the globalization.[93] During the 1980s, Le Pen complained about the rising number of "social parasites", and called for deregulation, tax cuts, and the phasing-out of the welfare state.[138] As the party gained growing support from the economically vulnerable, it converted towards politics of social welfare and economic protectionism.[138] This was part of its shift away from its former claim of being the "social, popular and national right" to its claim of being "neither right nor left - French!"[139] Increasingly, the party's program became an uneasy amalgam of free market and welfarist policies.[93][140]

Under her leadership, Marine Le Pen has been more clear in her support for protectionism, while she has criticised globalism and capitalism for certain industries. She has been characterized as a proponent of letting the government take care of health, education, transportation, banking and energy.[136][140]


My impression, which might be wrong, is that the Front is mainly about completely other issues than economic policy, and adapts its economic policy over time in ways that the economic policy can support the main focus of the primary party policies.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat May 31st, 2014 at 12:16:52 PM EST
[ Parent ]
He's concern-trolling because he's a conservative Eurosceptic writing in a conservative Eurosceptic newspaper. He doesn't really have the interests of the European left, or of the EU, at heart.
by afew (afew(a in a circle)eurotrib_dot_com) on Sat May 31st, 2014 at 01:55:57 PM EST
[ Parent ]
in France. If I want to work, I need to leave France, which I indeed do, lately in North America, I will let you imagine the carbon footprint of that.

And as your article rightfully points out, the reactionary policies which cause this to be the case are being pursued by the PS.

And as a sentient person,  you think I should ignore that fact but remember what MLP's dad represented and assume she will be the same?

You do see the inconsistencies here?

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Jun 1st, 2014 at 03:54:28 PM EST
[ Parent ]
You do realise that Jean-Marie is still an MEP?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Sun Jun 1st, 2014 at 04:13:57 PM EST
[ Parent ]
And Bruno Gollnisch.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Jun 1st, 2014 at 04:20:41 PM EST
[ Parent ]
is PM and François Hollande is President.

What is your alternative?

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Jun 1st, 2014 at 04:46:43 PM EST
[ Parent ]
Pretty obviously, not Le Pen or Gollnisch.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Jun 2nd, 2014 at 02:42:02 PM EST
[ Parent ]
We know what your viable alternative is not.

But what is your viable alternative?

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Jun 2nd, 2014 at 02:56:11 PM EST
[ Parent ]
If you consider a nationalist-xenophobe party that has consistently made racism part of its subjacent but apparent-to-all appeal as a "viable alternative", then I don't think we have anything more to say to each other.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Jun 3rd, 2014 at 01:45:06 AM EST
[ Parent ]
answered my question.

And you are right. We have nothing to say to each other, just as you have nothing to offer to real people living in France.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Jun 3rd, 2014 at 01:48:16 AM EST
[ Parent ]
Well what's your offer?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Jun 3rd, 2014 at 11:55:47 AM EST
[ Parent ]
Good not just for France but for all of Europe.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Tue Jun 3rd, 2014 at 10:27:22 PM EST
[ Parent ]
And today's headline in The Ironic Times: France Determined to Become the United States.
by rifek on Mon Jun 23rd, 2014 at 10:08:26 PM EST
[ Parent ]
Because there is unemployment and the PS is applying reactionary policies, that's a reason to support the extreme right? I don't see much consistency there.

You'll get no help from the Front National. Marine is creating an illusion.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Jun 1st, 2014 at 04:20:02 PM EST
[ Parent ]
But if she were to pull France out of the Euro, that would be help enough. Because I am not about to learn German.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Sun Jun 1st, 2014 at 04:42:28 PM EST
[ Parent ]
Because obviously France has a whole lot of nothing to the left of the PS.

Now, I'm not as scared as some on the left of working with ugly parties against neoliberals. But there is a difference between working with ugly parties after an election and empowering them during one.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 1st, 2014 at 05:03:21 PM EST
[ Parent ]
to the left of the PS in France.

Show me one though with anything approaching a brain regarding the Euro and the EU, and I will get behind them.

Hint...there simply is no one credible who fits that bill.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Jun 1st, 2014 at 05:07:13 PM EST
[ Parent ]
So, how does that make the FN credible?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Jun 1st, 2014 at 05:34:59 PM EST
[ Parent ]
Is very credible.

No one on the left is saying this outside of academia.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Jun 1st, 2014 at 05:57:16 PM EST
[ Parent ]
Nice wordplay, but this doesn't make them and their programme credible or one with anything approaching a brain.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Jun 3rd, 2014 at 01:41:43 AM EST
[ Parent ]
If France really pulls out of the Euro, this would be a big deal.

You are saying this is impossible?

And I guarantee you friend, I do have a brain.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Jun 3rd, 2014 at 01:50:25 AM EST
[ Parent ]
Well, then show it. What I see is an angry man trying to get back at and troll the PS in the wrong place. I suggest you go looking for the "social democratic types" at Le Monde or a similar place.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Jun 3rd, 2014 at 12:02:43 PM EST
[ Parent ]
So you support somebody who isn't credible.

Syriza was "not credible" as late as the spring of 2010.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 2nd, 2014 at 12:32:40 PM EST
[ Parent ]
Excellent non-argument for legitimising nationalist xenophobes.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Jun 2nd, 2014 at 02:41:17 PM EST
[ Parent ]
credible once the Troika are at Greece's throat. And by then, the mortality rate is already rising, much less civil liberties and social gains being gutted.

In other words, this should not be acceptable.

Keep in mind the apt phrase "the hun is at your throat or at your feet."

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Jun 2nd, 2014 at 02:55:08 PM EST
[ Parent ]
There is value in keeping the Unserious left-wing option alive even if it only becomes credible once mortality starts rising and the hospitals start closing and the lights start going out.

Because the alternative to keeping the Unserious left-wing alternative alive is that the only parties left standing after the Very Serious People drive the country into a ditch are the far-right militias.

It's not particularly rewarding work, but it's important.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 2nd, 2014 at 03:19:31 PM EST
[ Parent ]
JakeS:
I'm not as scared as some on the left of working with ugly parties against neoliberals.

That's my reluctant feeling about Grillo and Farage. All the worry is about Farage contaminating Grillo, but there's not much talk about the possible good influence from the MV5. Farage is for nuke power, and I know the MV5 will never go for that.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Jun 1st, 2014 at 05:50:43 PM EST
[ Parent ]
Nukes are national policy anyways, and if Brussels want to wrench that policy choice away from us, they'll have to take it from our cold dead hands.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 1st, 2014 at 06:58:26 PM EST
[ Parent ]
Tell that to Nick Clegg.
by rifek on Mon Jun 23rd, 2014 at 10:10:17 PM EST
[ Parent ]
If anyone believes that the Front National policies will be "on the Left" and not favor the French oligarchy -- at least those not foolish enough to oppose them, I have an Eiffel Tower in Paris I'm willing to sell for a good price.
by Bernard on Sat May 31st, 2014 at 08:25:30 AM EST
[ Parent ]
now, given German intransigence, the only way to assure even the possibility of social progress.

What is your alternative to the Hollande/Valls austerity suicide pact?

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Jun 1st, 2014 at 03:56:39 PM EST
[ Parent ]
Tax credit-based Wörgl money, perhaps...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Jun 1st, 2014 at 07:01:21 PM EST
[ Parent ]
If the ECB keeps the spread down, it is because of the "Draghi Effect" as it hasn't bought any bonds since 2011. That's why the criticism of plans for Quantitative Easing along the lines of "yields are low already, what's the point of QE?" is right (I think it may have been Weidmann to say so).

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu May 29th, 2014 at 03:58:04 PM EST
[ Parent ]
>If the ECB keeps the spread down, it is because of the "Draghi Effect" as it hasn't bought any bonds since 2011.<

A very successful bluff

by IM on Thu May 29th, 2014 at 04:52:29 PM EST
[ Parent ]
Why did the BVG's ruling have no effect?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri May 30th, 2014 at 05:43:13 AM EST
[ Parent ]
They didn't rule, they kicked it up to the ECJ.
by IM on Fri May 30th, 2014 at 09:22:04 AM EST
[ Parent ]
I thought they ruled Germany could not cooperate with the OMT in any case, and asked the ECJ to clarify whether the rest of the EU could.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri May 30th, 2014 at 09:44:42 AM EST
[ Parent ]
I interpreted the majority decision (6:2) in the way that while they think OMT is illegal and Germany obligate to stop it, they still relegated the decision to the ECJ.
by IM on Fri May 30th, 2014 at 10:25:31 AM EST
[ Parent ]
What is conspicuously missing from Evans-Pritchard's piece is a discussion of parallel policies outside the EMU, above all in the UK. Which bodes ill to any hopes that blowing up the EU (or at least the Euro) will bury austerianism.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed May 28th, 2014 at 11:22:39 AM EST
It wouldn't bury austerianism, but it would unlace the institutional straitjacket on Euro area countries.

Beyond that, of course, there's the global rule of the financial sector. I wonder how long Mark Carney can go on saying things like this without getting nobbled in some narrow alley of the City?

by afew (afew(a in a circle)eurotrib_dot_com) on Wed May 28th, 2014 at 11:56:14 AM EST
[ Parent ]
Ambrose Evans-Pritchard may be right, but he's also concern-trolling. He doesn't want the EU to succeed. If France pulls the plug on the Eurozone, there is a real risk that the whole EU will go with it, which is what AE-P actually wants.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed May 28th, 2014 at 11:26:55 AM EST
This is true, but it doesn't invalidate the criticism. Whether France pulls the plug or not, the EU is heading for the cliff-edge.

And from the point of view of a pro-European, it seems to me highly desirable that France stand up and lead the struggle to redefine the whole small-p project. It might still be possible to reach a positive outcome, but it's hard to see that happening without a change in French attitudes.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed May 28th, 2014 at 11:47:27 AM EST
[ Parent ]
And a change in Italian attitudes, too...

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed May 28th, 2014 at 12:43:56 PM EST
[ Parent ]
Ah, so you're also in favour of fair and balanced sustainable reform. At least everyone is on the same page here.
by Bjinse on Wed May 28th, 2014 at 12:44:47 PM EST
[ Parent ]
whatever redefine is.
by IM on Thu May 29th, 2014 at 12:19:08 PM EST
[ Parent ]
Go back to pre-Maastricht and start again. Either without a single currency, or with one that can work, ie within a fiscal transfer union.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu May 29th, 2014 at 12:31:53 PM EST
[ Parent ]
You know you've seriously fucked up when the sanest commentary is from the concern trolls...

Less flippantly, your framing is wrong, because it fails to consider the baseline. If France pulls the plug on the Eurozone, the chances of the EU surviving increase as a consequence.

Because the chances of the EU surviving under business-as-usual are, eh, bad.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 28th, 2014 at 02:21:43 PM EST
[ Parent ]
From Eurointelligence today: Draghi vs Krugman
The ECB held two days of what appeared to be a useful conference to debate some ideas - though without agreeing on a course of action. The highlight was Paul Krugman's endorsement of a higher inflation target. This is what Krugman had to say:
The intense resistance of central bankers to regime change even after more than five years at the zero lower bound shows that the kind of policy stasis that afflicted Japan for almost two decades is a more or less universal phenomenon...And let's be blunt, there are already visible tendencies toward a similar loss of resolve in Europe, for example declarations by monetary officials that low inflation isn't really a problem because it's mainly driven by needed adjustments in debtor nations.
In the discussion of Krugman's paper Guido Tabellini said he agreed with Krugman that the inflation targeting regime needed to be reconsidered. As alternatives he also suggested a price level target, or a nominal income target.

From Bloomberg we hear that Otmar Issing said the central bank would lose credibility if it shifted the inflation target. And James Bullard of the St Louis Fed agreed. He said the job of the central bank is to actually hit the target, not shift the target once you have missed it.

Reuters reports that Mario Draghi was especially sceptical.

What would it mean for a German, for example, to have a 5% objective in the whole of the euro area... I don't even want to think [about] that.
Still hostage to German neuroses.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed May 28th, 2014 at 12:48:52 PM EST
Well, the Germans would say "Right, we're leaving the euro!", and we would reply "Don't let the door hit your arse!"

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed May 28th, 2014 at 01:02:09 PM EST
[ Parent ]
We would. But our governments would say 'please take us with you'.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed May 28th, 2014 at 01:07:39 PM EST
[ Parent ]
Applying to a privileged partnership with Germany. Like Renzi.
by IM on Thu May 29th, 2014 at 12:31:17 PM EST
[ Parent ]
IM:
Applying to a privileged partnership vassalage with Germany.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu May 29th, 2014 at 12:40:23 PM EST
[ Parent ]
A special relationship
by IM on Thu May 29th, 2014 at 12:46:41 PM EST
[ Parent ]
That one also depends on gunships.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu May 29th, 2014 at 01:13:01 PM EST
[ Parent ]
"Otmar Issing said the central bank would lose credibility if it shifted the inflation target."
"He said the job of the central bank is to actually hit the target, not shift the target once you have missed it."

Mmm this is designed to make it sound like changing the target would be akin to shifting the goals to claim you scored one.
But moving the target from 2 to 5% when you are stuck at 1% is quite the opposite. It's an increased recognition of having failed the economy.

As it is, the bank is aiming for too low, and failing to achieve even that.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed May 28th, 2014 at 01:39:15 PM EST
[ Parent ]
The dominant mantra is that the ECB is there to fight inflation, not to target any particular percentage. There isn't even the pretence of an effort to hit 2%.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed May 28th, 2014 at 02:47:05 PM EST
[ Parent ]
Deflation is the sign of virtue.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu May 29th, 2014 at 05:02:28 AM EST
[ Parent ]
Deflation combined with growth.

And jobs.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 29th, 2014 at 07:49:17 AM EST
[ Parent ]
Remember: strictly speaking 2.0% isn't the target but the ceiling.
by IM on Thu May 29th, 2014 at 12:32:36 PM EST
[ Parent ]
So -2% is OK?
by afew (afew(a in a circle)eurotrib_dot_com) on Thu May 29th, 2014 at 12:41:10 PM EST
[ Parent ]
ECB: Monetary Policy
The primary objective of the ECB's monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term.

I'd say target is more accurate.

by generic on Thu May 29th, 2014 at 12:46:35 PM EST
[ Parent ]
true but "below". 1.8% is good, 2.3% not.
by IM on Thu May 29th, 2014 at 12:47:43 PM EST
[ Parent ]
Even to replace the 2% "target/ceiling" with a 2% 5 year moving average would be a major advance, as it would force more reflationary policy after consistently undershooting the target for some years.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu May 29th, 2014 at 04:02:36 PM EST
[ Parent ]
No, that would be a bad idea, as it would force meritless contractionary policy after overshooting.

Last year's inflation is water under the bridge.

Now, if your inflation rate systematically undershoots during slumps, and systematically overshoots during booms, then it would indicate that you need more fiscal policy in your policy mix - because fiscal policy works directly on the real economy, while interest rate policy works only at one remove, if at all.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 30th, 2014 at 05:53:14 AM EST
[ Parent ]
1.8% is good, 2.3% not.
And when you get 0.8% you redefine "the medium term" to mean "the medium to long term".

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu May 29th, 2014 at 04:05:34 PM EST
[ Parent ]
I don't agree. Below but close to 2% means 1.9999...%. And then you have a band around that where you want to be, the closer to the middle of the band the better, say 0.9999...% to 2.9999...%.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri May 30th, 2014 at 02:40:56 AM EST
[ Parent ]
That is just realistic. Draghi is not the problem.

(Since he chairs the ECB I am a bit of a fan)

by IM on Thu May 29th, 2014 at 12:28:04 PM EST
[ Parent ]
Look, the German conviction that the 1923 hyperinflation caused Hitler in 1933 is a neurosis, to put it charitably. Brünning was applying austerity in 1931.

Don't they teach the history of the Weimar Republic in German schools?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Thu May 29th, 2014 at 04:03:20 PM EST
[ Parent ]
What are you talking about?

And indeed, the great depression , Brüning and austerity and Schacht and Mefowechsel are all very much part of the curriculum.

by IM on Thu May 29th, 2014 at 04:53:23 PM EST
[ Parent ]
I'm talking about "inflation => invading Poland", which is very much what German policy neurosis is about.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri May 30th, 2014 at 05:31:34 AM EST
[ Parent ]
That seems to be rather your neurosis.
by IM on Fri May 30th, 2014 at 09:13:50 AM EST
[ Parent ]
I'm not the one who insinuated Draghi is Faust's Mephistopheles. That would rather be Jens Weidmann.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri May 30th, 2014 at 09:17:28 AM EST
[ Parent ]
Draghi is devil in Weidmann's euro drama - FT.com  (September 23, 2012)
Whatever you need to know about Germany, you will probably find it somewhere in Goethe's Faust. But it is rare that wisdom is found in part two of the tragedy, one of the most revered and least read books in all of German literature. Someone who managed to dig up something truly remarkable from it was Jens Weidmann. The president of the Bundesbank cited Mephisto's advice to the Emperor, quoted above, that the simple solution to a lack of money is to print it
Mephisto's speech encapsulates Germany's ultimate nightmare about fiat money and about monetary union. It was clear from the context and the timing of the speech that Mr Weidmann would cast Mario Draghi in the role of modern-day Mephisto, though, obviously, he did not say so explicitly. Mr Weidmann's remarks concluded one of the most extraordinary two-week periods in the history of central banking. We are on the cusp of an important new development, one the Bundesbank abhors. The US Federal Reserve has adopted a new programme of quantitative easing and has become much more determined in guiding future expectations. The European Central Bank, which Mr Draghi heads, has announced an unlimited - though conditional - programme of bond purchases; a programme that jars with everything the Bundesbank stands for and believes in.
by Bernard on Fri May 30th, 2014 at 11:09:23 AM EST
[ Parent ]
I guess Weidmann hasn't read Faust 2 either. If he had, he would have noticed the country suffering from austerity before Mephistopheles comes up with his plan, and the neighbouring countries about to invade it. After a bout of inflation, things calm down, and, in the next scene, the new prosperity shows everything going fine, with some squandering the money, but others using it to get out of debt etc.

As Wedimann should know, having certainly read Faust 1, Mephistopheles is the one who "stets das Böse will und stets das Gute schafft." Draghi, Merkel and all the rest seem more determined in showing us what the road to hell is paved with.

Weidmann's misreading of Faust pales when compared with the FT, of course

Mr Weidmann did not highlight another cautionary tale from the play for economists. Faust in the final earthbound scene comes up with a plan for universal prosperity and happiness ... and promptly dies.
by gk (gk (gk quattro due due sette @gmail.com)) on Fri May 30th, 2014 at 11:27:15 AM EST
[ Parent ]
The first room of the Dokumentationszentrum at the Reichsparteitagsgelände in Nürnberg has a case with lots of huge bills presumably to indicate that things started with hyperinflation. I couldn't find anything comparable about Brüning.
by gk (gk (gk quattro due due sette @gmail.com)) on Fri May 30th, 2014 at 07:18:53 AM EST
[ Parent ]
I was talking about little things like school, you know.
by IM on Fri May 30th, 2014 at 09:12:59 AM EST
[ Parent ]
I know. But there's what they teach you at school and what "you" (i.e., not you personally...) retain.
by gk (gk (gk quattro due due sette @gmail.com)) on Fri May 30th, 2014 at 09:22:42 AM EST
[ Parent ]
The problem isn't the euro, it is the stranglehold of austerity.

If actually expansionary policies were pursued, the euro would not prevent them from working, and it would in fact be an excellent tool to pursue them through - Outright or veiled currency creation funding a pan-european HSR or maglev system, for example.

And dismantling the euro would cause at least short term disruptions in the trade of the euroblock, which is most emphatically not what we need right now. Heck, the need to hedge currency movements in cross border production flows means even more games for finance to play - is this really what we think will solve things?

In order for the real economy to improve, large or many projects must be undertaken that improve the efficiency and output of the world we live in - handing money to banks clearly does very little other than make bankers rich, so what we should try is to either hand money directly to the populus as a whole, or very large projects.

Mega-storage for electricity, tying together the cities of the union with an enduring transport network, or in the less physical realm, commission an creative commons  operating system written to formal-correctness proof standards. This would occupy half the coders in the union for years. And once done, would become the bedrock of all computing. Because it would be both bug-free, and free.

by Thomas on Wed May 28th, 2014 at 02:40:35 PM EST
The problem isn't the euro, it is the stranglehold of austerity.

Austerity is baked into the Euro at the treaty level.

Of course since the relevant articles of the treaties, much like the American "debt ceiling," codify an incoherent conventional wisdom rather than a rigorous economic analysis, there are all sorts of workarounds should workarounds be desired. But that would be a transparently bad-faith reading of the treaties.

Now, I don't have a problem with engaging in a little legal legerdemain to get around a mutual suicide clause - or even just flat up breaking the relevant clauses. But that is because I find a constitutional crisis much less scary than a constitutional crisis following ten years of austeritarian idiocy, not because I labour under any illusion that making policy based on a transparently bad-faith reading of the constitution will not result in a constitutional crisis.

And dismantling the euro would cause at least short term disruptions in the trade of the euroblock, which is most emphatically not what we need right now.

That is not the dominant historical experience of countries withdrawing from the gold standard in the 1920s and '30s.

Heck, the need to hedge currency movements in cross border production flows means even more games for finance to play

Nothing prevents the central bank of a de-pegged currency from acting as a non-profit market maker in vanilla currency swaps and forwards.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 28th, 2014 at 04:01:51 PM EST
[ Parent ]
It is still the wrong fight. The Euro isn't austerity - it is perfectly possible to exit the euro and go right on practicing austerity, now with added competitive currency devaluations.
What we need to do is to get our political class to renounce austerity - to no longer believe in their bones that it is the right thing to do.
If that fight is won, then either the euro is no longer a problem, or if it turns out to actually be in the way of taking action, will get dismantled. Focusing on the currency is simply misplaced energy.
by Thomas on Wed May 28th, 2014 at 05:33:54 PM EST
[ Parent ]
Usurping the entire conventional wisdom and displacing at least a plurality of the quacks currently in central advisory positions in treasuries and central banks around Europe is a major and long-term task.

Unless we get substantial relief from the costs of Austerity in the short term, there will be no long term in which to accomplish long-term tasks. A couple of rounds of competitive devaluation would provide such short-term relief.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 28th, 2014 at 05:55:45 PM EST
[ Parent ]
"A couple of rounds of competitive devaluation would provide such short-term relief."

But would we get that? If the local elites are hell-bent on insanity, as some clearly are (look at the UK, although with the election approaching, it's true that Osborne reversed austerity, but he did not admit to it and plans to double up after the election).

I do see Thomas' point. And in a way the Euro could provide the leverage to achieving a change in a shorter term, without dismantling the EU. But it would, I believe, require the threat by France to leave. And I don't think the current government has it in himself (he would get crucified by the right-wing press, which is a problem when you start from an unpopularity record).

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu May 29th, 2014 at 02:14:00 AM EST
[ Parent ]
A couple of rounds of competitive devaluation would provide such short-term relief.

But would we get that?

Historical experience points to "yes."

Absent shared physical coin and note, it is basically impossible for the states under deflationary pressure to deflate sufficiently to avoid depreciation.

"Political will" does not really matter when it is the will to accomplish mathematical impossibilities.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 29th, 2014 at 05:06:22 AM EST
[ Parent ]
I think Cyrille meant, would our elites choose competitive devaluation? I think recent evidence in non-Eurozone countries points to "no". Austerity is the solution for every economic problem here, too. (In Hungary, the last competitive devaluation was combined with the most severe austerity up to then, in 1995; at least three more rounds of austerity without devaluation came since.)

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu May 29th, 2014 at 06:47:41 AM EST
[ Parent ]
The difference between austerity under a common currency and austerity under a unilateral exchange rate peg is that it has to get a lot worse before a country is ejected from a common currency than it has to get before a country can no longer defend its unilateral peg.

That's the difference between the depression of the American trade bloc following the panics of 1929, and the depression of the Asian developing economies following the end of the Yen carry in 1998.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 29th, 2014 at 09:07:27 AM EST
[ Parent ]
We need to understand that the Euro project is essentially a competitive devaluation for Germany.

As long as the current architecture stays in place, German industrial exports will profit from an undervalued currency, while the rest of us struggle with what is for us an overvalued currency.

End the Euro, let the DM float, you will see what happens. And, for the rest of us, it will be the best thing we can do to kick-start exports.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Fri May 30th, 2014 at 03:47:38 PM EST
[ Parent ]
the local elites are hell-bent on insanity

The local elites are not hell-bent on insanity. The local elites are playing in a global world where workers are worth as little as they can get away with paying them, capital can move instantly across borders without taxation, politicians and policy can be bought to order, and no one gives a crap about any of that fairness or progress stuff.

The 'crisis' has been excellent for the elites everywhere. They're all much, much richer and more powerful than they were ten years ago.

Can we please stop thinking this is an accident, or that they don't understand what they're doing?

It's not even 'austerity' - it's the Euro and Anglo equivalent of the rise of the oligarchs during the end of the Soviet Union.

While everyone here is busy debating whether Krugman has a point sometimes, we've all been robbed at gunpoint.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 29th, 2014 at 07:55:47 AM EST
[ Parent ]
Cyrille:
But it would, I believe, require the threat by France to leave.

Or Italy, or both, or with Spain and (why not?) Greece. At that point it's Neuro&Seuro or bust, no?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Jun 24th, 2014 at 02:46:58 AM EST
[ Parent ]
You are assuming killing the euro is easier. I can't see how it really could be. Both require the bulk of our political classes to admit error, and the arguments against austerity are on much stronger footing than the arguments against large currency areas. Because there really are no examples of austerity working well, but there are existence-proofs for large currency areas.
by Thomas on Thu May 29th, 2014 at 06:30:41 AM EST
[ Parent ]
Admittedly, but they all involve very strong internal transfers.
So the Euro could work if pensions, benefits, defense, border controls (yes, the Shengen agreement is a massive subsidy for Germany and other countries in the middle of it) were paid at the federal level. That would not be enough (cultural and linguistic differences would still mean that assymetric shocks would sting harder, so average inflation would have to be higher to help assuage them), but certainly necessary.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Thu May 29th, 2014 at 06:45:14 AM EST
[ Parent ]
border controls (yes, the Shengen agreement is a massive subsidy for Germany and other countries in the middle of it)

Do you mean the cost of implementing and maintaining Schengen border controls? There is EU funding for that.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu May 29th, 2014 at 06:54:06 AM EST
[ Parent ]
But is there enough funding? For it not to be a subsidy, the external border control should be funded by EU money in its entirety, not just a fraction.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu May 29th, 2014 at 08:04:12 AM EST
[ Parent ]
the border controls, full-paid or not, are one thing, the costs for refugees and illegal immigrants another.
by IM on Thu May 29th, 2014 at 12:43:12 PM EST
[ Parent ]
The Euro may die by accident. Political or financial accident involving some country or bank. In fact, after Germany laid down red lines blocking any policy solution to the Euro crisis, an uncontrolled breakup is the only politically feasible solution.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu May 29th, 2014 at 08:05:16 AM EST
[ Parent ]
Because breaking the Euro requires, in extremis, only one member government (but realistically more like a handful) deciding to bugger this for a game of soldiers.

Breaking austerity without breaking the Euro requires a supermajority of member governments to take a sufficiently strong stance against austerity. And that supermajority must include Germany.

And I cannot tell a plausible story about how to build an anti-austerity coalition big enough and powerful enough to bully Germany into unconditional surrender on the most important German foreign policy objective of the last forty years, without passing through a several months (or years) long stage where the anti-austerity coalition is:

  • Big enough and strong enough to break the Euro.
  • Big enough and strong enough to pursue anti-austerity policies outside the Euro.
  • Not big enough and strong enough to dictate policy to Germany.
  • Under extreme pressure from their own stakeholders to deliver on their anti-austerity promises in order to retain sufficient legitimacy to be able to effectively govern.

If the process of building an anti-austerity coalition will break the Euro anyway, then there is no reason not to gather up anti-Euro dissidents with other motives than ending Austerity - anti-Austerity dissidents who do not have the stomach to, if necessary, break up the Euro will break off anyway once push starts coming to shove.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 29th, 2014 at 09:00:02 AM EST
[ Parent ]
I believe your conditions are fulfilled by an anti-austerity coalition of two countries out of France, Italy and Spain. The trouble is, I don't see that happening

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu May 29th, 2014 at 09:55:17 AM EST
[ Parent ]
The basic problem is that the Socialists have become Europe's center instead of Europe becoming socialist.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed May 28th, 2014 at 10:56:01 PM EST


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