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Did Schäuble win?

by Migeru Sat Feb 21st, 2015 at 04:38:34 AM EST

While the Greek finance ministry is busy preparing their reform program to be presented to 'The Institutions' by close of business on Monday, the press is busy adjudicating victory in the deathmatchnegotiations between Schäuble and Varoufakis.

This is the Varoufakis view:

And this is the Schäuble view.Now, my own opinion is that Varoufakis got what he wanted. On Sunday night he had a draft proposed by Moscovici which he was ready to sign and to which he "added come conditionalities of their own" as a show of good will and to sweeten the deal for the other side. To this the Eurogroup reacted with a different, "unacceptable" draft. And so on Thursday Varoufakis presented a blend of the Moscovici and Dijsselbloem drafts, together with his own conditionalities. This was rejected out of hand by the German finance ministry.

The fact that the agreed draft is fairly close to Varoufakis' letter on Thursday is a German climbdown from that flat out rejection. But judge for yourselves: the two texts are side by side below the fold.

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Varoufakis and the memorandum

by Migeru Fri Feb 13th, 2015 at 04:32:14 AM EST

Cross-posted from The Court Astrologer

Now that the Greek cliffhanger has moved on to whether Tsipras will give in to Merkel or not, let me go back to the debate over the past two weeks on Yanis Varoufakis' position on the Troika. The favourite claims of the Very Serious People were that the Greek government was making different statements abroad from what it said in Greece, that it was flip-flopping on their acceptance of the "program", or that Varoufakis in particular was one day saying he rejected the memorandum in toto and the next that it accepted 70% of the reforms, as if that were a contradiction.

In fact, to understand the Greek position one need only pay attention to what Varoufakis (mostly) has been saying, as opposed to what the press said he has been saying, and not assume that just because Syriza are radical leftists they must be talking nonsense. With this in mind, let's take a look at Varoufakis' second address to the Greek Parliament on February 10, during the debates preceding the new government's confidence vote. It is not hard to see that Varoufakis' position can be summarised as follows:

  • The "memorandum" is a "pyramid scheme" whereby an insolvent Greece is made to indebt itself further in order to pay its creditors on condition that it shrink its income.
  • The "program" is a "fig leaf" intended to cover up the fraudulent logic of the "pyramid scheme" "memorandum".
  • The "troika" are bureaucrats sent to Greece to implement "austerity" and with no authority to discuss the "reforms" they are charged with overseeing.
  • Some of the "reforms" happen to be positive, some negative, but this is all incidental as they are part of the "fig leaf".
  • The SYRIZA government agrees with 70% of the "reforms" and considers the rest "toxic".
  • Because the "troika" bureaucrats do not have the authority to discuss the "toxic" reforms, the SYRIZA government does not recognise them as interlocutors. It does recognise the "institutions" and "partners" with an authority to discuss the "reforms".
  • The SYRIZA government is willing to negotiate a new "program" with the legitimate "institutions" and "partners", but not to extend the existing "fig leaf".
  • The SYRIZA government "accepts 0%" of the "memorandum" and its "austerity" "pyramidal logic".
As this was already clear at least since the press conference with Schäuble 5 days earlier, serious people who make snide remarks about 70% not being the same as 0% are being intellectually lazy.

To illustrate the depths of misrepresentation, be it due to laziness or dishonesty, in the serious people's commentary, let's look at Varoufakis' "cunning plan" for negotiating with the Eurogroup:

Our only tactic, ladies and gentlemen of the Opposition, would be to come up with reasonable, sensible proposals. I will not go with any available tacticism. Although I have spent many years of my life with game theory, I assure you that it will not apply it. Game theory is for gaming. Not playing with the future of Greece. Not playing with the future of Europe. Without bluffs, without twists and turns, this is our "cunning" tactic.
Now look at the reporting:To substantiate my above interpretation of Varoufakis' position, here is an excerpt from the Greek Parliament's official journal for February 10 [.doc file], google-garbled. To find the speech in the very long file, just perform a textual search for 'ΒΑΡΟΥΦΑΚΗΣ' (all caps) which indicates he's the one speaking, whereas lower case returns dozens of hits of references to him by other speakers.
The Memorandum for us very simply defined. Was that the combination of new debt accumulated over already unsustainable loans and private debt, provided the shrinking incomes, from which have to be repaid the old and new loans. That was the understanding.


This is the memorandum which was born in 2010 and which remains philosophical, macroeconomic, morally toxic and the skeleton, the basis of the program, which "run" and "running" up to our election. Is pyramidal austerity imposed and guarded with periodic visits the troika of envoys technocrats three important institutions to whom we belong and will belong and in which we are working, but not on the basis of stewardship and enforcement by a group of technocrats who send in the country us, with colonial features, this pyramid austerity.

Question: What percentage of the Memorandum accept? Just 0%! We will not accept nor a condition that enhances the vortex of the crisis, which magnifies the rate of debt, further wage reductions, new taxes on those who have already exhausted from taxation. We will not tolerate even a line, not a word, not one of the "red" lines that Mr. Venizelos, which reinforce the denial of reality and sacrifice Greeks of the most powerless without cause. We will not succumb to the deceitful error that deregulation of the labor market is reformed.
Ladies and gentlemen, the Memorandum, the pyramidal austerity loans the fed condition growing decline of our society, this story ended. This does not mean that ended the loan agreement with our partners. To stop, however, this Loan Agreement to be toxic require a new agreement, a new contract between us and our partners. Elected to negotiate. What to negotiate? A new agreement.


For example, why reject the commitment to reform the tax code -We have no reason to do it, just because it is part of the list of the MoU; - or the commitment of the redefinition of the concept of tax evasion? We want to do that. 70% of this "fig leaf" of the paper, the list, which came mnimoniaki logic pyramidal austerity is either irrelevant or independent of the mnimoniaki logic.

I repeat: What percentage of the Memorandum accept? We accept 0%, ladies and gentlemen.


Konstantinos SKREKAS: The "fig leaf" we want to hear.


GIANIS VAROUFAKIS (Minister of Finance): The "red" lines are yours and ours. And we have more. But overall, if the yield line to line and quantitatively, around 30% is toxic, mnimoniako piece which will reject.

And just so that it cannot be said that I take things out of context, I reproduce the entire speech below the fold. Enjoy.

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Greece's Plan B?

by Migeru Tue Feb 3rd, 2015 at 02:14:48 AM EST

In an ideal world, Greece's new finance minister Yanis Varoufakis would succeed in negotiating with the Eurogroup on the basis of his own Modest Proposal. However, we live in this universe and the immediate question arises of how Greece is going to fund its foreign commitments, in particular the redemption of €7bn's worth of bonds held by the ECB and maturing in 6 months. According to the Wall Street Journal,

The next hurdle will be €7 billion in bonds held by the ECB that mature in July and August. Greece doesn't have the cash to repay them, and failure to do so could ultimately lead to Greece's exit from the eurozone.

Syriza Win in Greek Election Sets Up New Europe Clash (January 26, 2015)

Here I outline a plausible (based on the published opinion of Greek government ministers and their associates) plan for Greek economic recovery, consisting of:
  • a universal job guarantee program at the new minimum wage
  • the introduction of a parallel currency in the form of transferable tax credits
  • capital controls

Cross-posted on The Court Astrologer

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This, my friends, is why we can't have nice things

by Migeru Sat Nov 29th, 2014 at 12:16:24 PM EST

Earlier today in the European Parliament, Jean Claude-Juncker introduced his much-touted €300bn investment plan with these words:

I often hear that we need 'fresh' money. What I believe we really need is a fresh start and fresh investment. Others say we need more debt. We do not. National budgets are already stretched. The EU operates on balanced budgets and the abundant liquidity can allow Europe to grow without creating new debt. We will not betray our children and grandchildren and write more checks that they will ultimately have to pay off. We will not betray the rules of the Stability and Growth Pact that we have agreed jointly - this is a matter of credibility.

cross-posted on The Court Astrologer

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Joschka Fischer on Vision

by Migeru Fri Nov 7th, 2014 at 01:42:54 AM EST

Tageszeitung has an interview with Joschka Fischer this [Nov 1st..Ed] weekend: ,,Der erste Schritt ist eine Vision" (the first step is a vision, 31 October 2014) on the occasion of his new book advocating a United States of Europe. To the charge that he's being unrealistic in that, he answers with

Woran die EU gegenwärtig krankt, sieht man in allen drei großen aktuellen Krisen: Sowohl in den Sicherheitskrisen in Osteuropa, im Nahen und Mittleren Osten als auch in der Finanzkrise fehlt Europa die politische Kraft, der feste politische Rahmen. Die EU als Staatenverbund reicht dafür nicht mehr aus! Und wie immer in Europa ist der erste Schritt der Realpolitik eine Vision. Wenn ich Frau Merkel etwas vorwerfen muss, ist das ihre visionslose Kleine-Schritte-Politik. Ich habe nichts gegen kleine Schritte, im Gegenteil. Aber man muss wissen, wo das Ziel ist.
We see the present sickness of the EU in all three major current crises: in the security crises in Eastern Europe and the Middle East as well as in the financial crisis, Europe lacks political power or a strong political framework. The EU as a union of states no longer suffices! And as always in Europe, the first step of Realpolitik is a vision. If I have to accuse Mrs. Merkel of something it is her visionless baby-step politics. I have nothing against baby steps, on the contrary. But you have to know what the goal is.
More below the fold

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Catalan scenarios

by Migeru Sun Sep 21st, 2014 at 03:47:43 AM EST

Now that Scotland voted 'no' in its independence referendum, the focus should shift to Catalonia and its campaign to hold an independence referendum on November 9. The referendum is opposed by the Spanish government. The Catalan regional parliament petitioned the Spanish parliament for the right to hold an independence referendum but was rejected. The Catalan parliament has just passed a "consultation law" intended to legalize the vote, which will be challenged shortly by the Spanish government in the Constitutional Court, which is expected to strike it down, at which point all bets are off.

It is my opinion that Catalan Premier Artus Mas of CiU jumped on the independence bandwagon two years ago only because his government was on the verge of collapse from the independentist challenge from the street and the looming insolvency of his government brougth about by the crisis and his own austerity policies. The Spanish government took the chance to bail out the Catalan government with austerian strings attached.

Below the fold, an enumeration of possible scenarios for the coming autumn of discontent.

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The bottom falls out

by Migeru Thu Sep 4th, 2014 at 08:46:17 AM EST

If you thought the ECB setting its deposit rate at negative 0.10% was the end of the road for interest-rate policy, you got another think coming:

4 September 2014 - Monetary policy decisions

At today's meeting the Governing Council of the ECB took the following monetary policy decisions:

  1. The interest rate on the main refinancing operations of the Eurosystem will be decreased by 10 basis points to 0.05%, starting from the operation to be settled on 10 September 2014.
  2. The interest rate on the marginal lending facility will be decreased by 10 basis points to 0.30%, with effect from 10 September 2014.
  3. The interest rate on the deposit facility will be decreased by 10 basis points to -0.20%, with effect from 10 September 2014.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.
How deep does the rabbit hole go?

Comments >> (38 comments)

On the culture of non-peer-reviewed research dissemination

by Migeru Thu Jul 24th, 2014 at 04:36:38 AM EST

"why do people submit drafts that have already been posted on Arxiv to peer-reviewed journals then?"
This may be a cultural issue and it helps to know where the arXiv comes from.

Originally posted in the Voice of the Researchers forum

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Do we want free movement of capital in Europe?

by Migeru Thu Jul 24th, 2014 at 01:52:29 AM EST

In the discussion of Britain's EU exit initiated by Frank, Cyrille challenges me repeatedly on free movement of capital:

I think the "four freedoms" should apply as widely as possible so, on that basis, it would be a bad thing if the UK were to leave the EU.
That is a consistent view, ...

[b]ut I had been under the impression that you were no fan of the free movement of capital -certainly an unrestricted one.

Well, touche
Unfettered cross-border capital flows are a bad idea. Just look at the financial crises of the last 30 years, worldwide.
So, do we want free movement of capital? More below the fold.

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Central Banking 101: the EONIA heartbeat returns

by Migeru Thu Jan 23rd, 2014 at 06:21:45 PM EST

Cross-posted from The Court Astrologer

If you google EONIA heartbeat the top three hits are my own European Tribune blogs

and a Nordea research note from 16 July 2013, Liquidity draining & EUR short end which has the following to say:
EONIA heartbeat pattern has returned...

Before December 2011, EONIA tended to spike on the last day of the maintenance period, as a result of fine tuning operations conducted by the ECB. These operations were suspended in the end of 2011 and the pattern wasn't seen any longer. Since the LTRO repayments started however, EONIA has spiked in the end of the month/quarter, and the largest spike in over a year occurred in the end of Q2 this year.

I don't think that the ECB fine-tuning operations were suspended. What happened was indeed that the LTROs flooded the banking sector with so much excess liquidity that banks no longer needed extra liquidity at the end of ECB reserve periods in order to meet their reserve requirements. But the weekly refinancing operations which the fine-tuning operations are part of still took place.

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Brazil: net debtor or net creditor?

by Migeru Fri Jan 17th, 2014 at 07:52:53 PM EST

Cross-posted from The Court Astrologer.

I saw something in the Financial Times which is screaming for an SFC treatment...

Beyond BRICS blog: Brazil: net debtor to the world (Jonathan Wheatley, January 15, 2014)

It has been a proud boast of Brasília for several years that it is a net creditor to the world because it holds more in foreign exchange reserves than it owes in overseas debt. However, it is far from clear that this is still the case. The issue is just one example of the vulnerabilities investors must include in their calculations of how Brazil and other emerging markets will fare as monetary policy in the developed world becomes less accommodating.
The gist of the argument is that the Brazilian Central Bank has been using currency swaps to try to drain domestic demand for dollars in an attempt to support its exchange rate. Analysts at BNP Paribas argue that the short sollar position accumulated by the BCB in the process must be subtracted from the foreign reserves, which now (after a few months of sliding Real exchange rate and increasing swap positions) means that Brazil is no longer a Dollar creditor.

Below I argue that this is wrong: Brazil remains a net creditor to the world since the swap positions with the domestic economy cannot affect the external balance (a point on which the BCB is correct). The conclusion I draw is that swaps is not a viable way to support the exchange rate. But we know a central bank cannot support its exchange rate indefinitely in any case. All this shows is that currency swaps with the domestic economy, however "clever", still cannot affect the exchange rate. You need to use reserves for that.

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Going places

by Migeru Fri Nov 1st, 2013 at 05:21:59 AM EST

This week eurogreen started a thread about spaceflight and the discussion quickly took an interestellar turn. Naturally, relativistic spaceflight made an appearance along with the usual misconceptions and misunderstood heuristics. Special relativity is obviously unintuitive, and unfortunately there is no substitute for a little linear algebra if one wants a reality check for one's heuristics.

Here I will describe the main features of the simple-minded interstellar flight strategy of accelerating at the rate \(1g\) of Earth's gravity for the first half of the trip and decelerating for the second half.

No, this is not a picture of a relativistic spacecraft with a van-Allen-like cosmic ray shield

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The fog of war

by Migeru Fri Sep 20th, 2013 at 08:27:46 PM EST

Three weeks ago I shared the following article: EXCLUSIVE: Syrians In Ghouta Claim Saudi-Supplied Rebels Behind Chemical Attack (By Dale Gavlak and Yahya Ababneh, MintPress News, August 29, 2013)

Dale Gavlak assisted in the research and writing process of this article, but was not on the ground in Syria. Reporter Yahya Ababneh, with whom the report was written in collaboration, was the correspondent on the ground in Ghouta who spoke directly with the rebels, their family members, victims of the chemical weapons attacks and local residents.

Gavlak is a MintPress News Middle East correspondent who has been freelancing for the AP as a Amman, Jordan correspondent for nearly a decade. This report is not an Associated Press article; rather it is exclusive to MintPress News.

I am quoting only the byline because this has now become a point of controversy in itself.

Antiwar.com: Retraction and Apology to Our Readers for Mint Press Article on Syria Gas Attack (Eric Garris, September 20, 2013)

On August 31, Antiwar.com reprinted an article from Mint Press News: "Syrians In Ghouta Claim Saudi-Supplied Rebels Behind Chemical Attack." We originally linked to it, but then reprinted on our site at the request of Mint Press because traffic on their site was crashing their server. The validity of the story was primarily based on the fact that the supposed co-author (Dale Gavlak) is a reporter for Associated Press.


Dale Gavlak has issued a statement saying she did not co-author the article and denies that she traveled to Syria or contributed to the article in any way. Here is his statement:

Mint Press News incorrectly used my byline for an article it published on August 29, 2013 alleging chemical weapons usage by Syrian rebels. Despite my repeated requests, made directly and through legal counsel, they have not been willing to issue a retraction stating that I was not the author. Yahya Ababneh is the sole reporter and author of the Mint Press News piece. To date, Mint Press News has refused to act professionally or honestly in regards to disclosing the actual authorship and sources for this story.

I did not travel to Syria, have any discussions with Syrian rebels, or do any other reporting on which the article is based.  The article is not based on my personal observations and should not be given credence based on my journalistic reputation. Also, it is false and misleading to attribute comments made in the story as if they were my own statements.

Gavlak has apparently sent an identically worded email to Brown Moses, a prominent blogger.

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Münchau on the politics of redistribution

by Migeru Thu Aug 29th, 2013 at 05:47:27 AM EST

In his fifth and final column on the economic programme of the major German parties for the upcoming elections, Wolfgang Münchau has this to say about Die Linke: Wahlprogramm der Linken: Rot-Rot-Grün ist die beste Lösung für Europa (Spiegel, 28.08.2013)

Das Wahlprogramm der Linken in puncto Euro-Krise zeugt von Ehrlichkeit und Intelligenz. Damit ist die Partei den Großen weit voraus - und der ideale Partner für SPD und Grüne.
Election program of The Left: Red-Red-Green is the best solution for Europe (Spiegel, 28.08.2013)
The Election program of the Left shows, on the Euro crisis, honestly and intelligence. Thus the party is far ahead of the big parties, and the ideal partner of the SPD and Greens.
Going beyond the Euro crisis analysis, which is standard around here, Münchau discusses the international dimension of redistributive policies. Quote and translation below the fold.

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Modern money and the public purpose I: Historical Evolution of Money

by Migeru Fri Aug 23rd, 2013 at 03:59:45 PM EST

Modern Money and Public Purpose is an eight-part, interdisciplinary seminar series held at Columbia Law School over the 2012-2013 academic year.

This video is 1h45' long
Starting at 4'45" is Randy Wray, followed by Michael Hudson.

You could just watch the first 4 minutes of Randy Wray, though.

Comments >> (2 comments)

LQD: Iran at the crossroads

by Migeru Tue Jul 9th, 2013 at 07:14:40 PM EST

From our very own Chris Cook: Iran at the crossroads (Trend, 9 July 2013)

...  today's high oil prices have not only acted to deter consumption, but have enabled Iran to act against unsustainable energy subsidies and pin the blame for an unpopular policy firmly on the US and EU. Iran's far-sighted strategic decision to process Iranian oil and gas into petrochemicals is now bearing fruit, since it keeps in Iran value previously extracted by the country's oil buyers, and transcends sanctions on crude oil.


... being ejected from the international SWIFT bank payment system meant that Iranians would necessarily have to use their renowned ingenuity to do something else. I also pointed out that the inability to access Swiss hard currency bank accounts would deter anyone tempted to take advantage of an official position.

In my view, even if Iran is tempted through negotiations to go back down the Western financial road, the toxic combination of partisan US politics and external relationships are such that financial sanctions are to all intents and purposes irreversible, at least in relation to the dollar.

You can read the rest over there, and comment over here.

Comments >> (18 comments)

It's okay if you're a conservative

by Migeru Sun Jul 7th, 2013 at 02:47:00 PM EST

I got to thinking about the rhetoric of monetary austerity and There-Is-No-Alternative, and I remembered the following oft-repeated argument by Thomas:

It annoys me that I keep having to point this out, but if the environmental movement is seen to stand for - to advocate- mass poverty, it will loose all popular support, and die a highly deserved death. This entire line of thinking is a dead end, because if it is mistaken - and I am quite confident it is -  it is Evil, in exactly the same way austerity is Evil, and if correct we are in any case doomed, because the course of action that would imply will never ever happen.
Austerity is evil. Austerians (and first among them, Merkel and Schäuble) continuously promise decades of recession and mass poverty. But it doesn't seem to be losing popular support; or if it is, it's losing popular support more slowly than the opposition. The "opinion leaders" in the media are not attacking Austerity with this kind of argument that voluntary poverty is unacceptable as they would be if those in power were "back to the land" environmentalists.

So, if Austerity™ "will lose all popular support and die a highly deserved death", why is it not happening? Does it happen "in the long run", when we're all dead anyway?

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A short note on extreme flooding (wonkish)

by Migeru Sat Jun 15th, 2013 at 05:36:59 AM EST

We just had a discussion of whether the Central European floods of the past week are an indication of a change in climate regime or not. A particular bone of contention was Jeff Masters' throwaway remark (quoted by ATinNM) that

If it seems like getting two 1-in-100 to 1-in-500 year floods in eleven years is a bit suspicious--well, it is. Those recurrence intervals are based on weather statistics from Earth's former climate. We are now in a new climate regime ...
One difficulty here is that the meaning of "100-year flood" seems to be unintuitive. As I explained in the thread:
the correct way to think about this is as the probability of the waiting time. Thus, "two events in 11 years" means "one waiting time of 11 years" so we're talking about just one observation, not two. The first flood resets the clock, so to speak. If we knew the date of the previous "100-year flood" in Central Europe, we'd have two observations to compare with the 100-year average waiting time.
ARGeezer, however, puts his finger on a key methodological issue:
I was originally thinking about the appropriateness of the designation of a certain level of flood as a 'hundred year event' and how that designation was achieved. Was it that no such event had been seen for 100 years, that the known frequency of such events was 100 years or was it simply assigning a designation in the face of knowing that the historical record is sketchy.
The fact is that detailed river flow statistics only exist for about 100 years, often less, and are extrapolated to larger flood sizes using theoretical probability distributions. In a 1994 paper [PDF] for the Geological Society of America, Donald Turcotte wrote
For large floods the fractal predictions (F) correlates best with the log Gumbel (LGu), while the other statistical techniques predict longer recurrence time for very serious floods. The fractal and log Gumbel are essentially power-law correlations, whereas the others are essentially logarithmic. The Log Pearson type III (LP) is the Federally-approved distribution for evaluating the flood hazard in the United States. For station I-1805 the 100 year flood predicted by the fractal correlation is a factor of 1.6 greater than the 100 year flood predicted by the Log Pearson type III correlation. For station 11-0980 the 100-year flood predicted by the fractal correlation is a factor of 2.3 times greater than the 100 year flood predicted by the log Pearson type III correlation. If, in fact, fractal statistics are applicable, then the use of log Pearson type III statistics consistently underestimates the severity of the 100, 150 and 200 year floods.
With the fit parameters given by Turcotte, "under the fractal model" the 100-year flood sizes given by the "Federally aproved" model are actually 40-year floods. Further evidence in favour of self-similar distributions over the log-Pearson type III is given, for instance, in this 2006 paper (only abstract available). The immediate question is whether the Europeans are making the same model assumption as the Americans and thus the so-called "100-year floods" are actually 40-year floods, in which case to have two of them in 11 years is not really that shocking.

Below the fold, some more wonk on recurrence time statistics.

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The Brussels Consensus: economic disaster in EU candidate countries (III)

by Migeru Tue May 7th, 2013 at 03:56:50 PM EST

This is what a currency peg to the Euro does to an economy on the fringes of the EU: The Economic Winter Will Stay in Croatia (6 May 2013)

Quite pessimistically is titled the spring forecast of the European Commission for Croatia - "Recovery slipping further away. Stuck in recession". Only two months before its accession to EU, the moods in Croatia are not at all festive. The economy has been in recession since 2008 as by now the economic activity has shrunk by almost 12%. The first signs of recovery are expected in 2014, but the conditionality is huge. In 2013, the Croatian economy is expected to contract by 1% as the main hamper to growth still is domestic demand which will continue to decline. The main reasons are continuing growth of unemployment as well as the nominal cuts of public sector wages by 3%. Inflation, too, is a factor for the not good economic perspectives ahead of the future 28th EU member state.
What? The Commission doesn't think cutting public sector wages in a recession is a good idea? Someone should tell Portugal!

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Ferguson hates on Keynes

by Migeru Mon May 6th, 2013 at 02:30:01 AM EST

From everyone's favourite sorry excuse for a historian: An Unqualified Apology (05/04/2013)

During a recent question-and-answer session at a conference in California, I made comments about John Maynard Keynes that were as stupid as they were insensitive.

I had been asked to comment on Keynes's famous observation "In the long run we are all dead." The point I had made in my presentation was that in the long run our children, grandchildren and great-grandchildren are alive, and will have to deal with the consequences of our economic actions.

But I should not have suggested - in an off-the-cuff response that was not part of my presentation - that Keynes was indifferent to the long run because he had no children, nor that he had no children because he was gay. This was doubly stupid. First, it is obvious that people who do not have children also care about future generations. Second, I had forgotten that Keynes's wife Lydia miscarried.

Niall Ferguson omits the third and important way his comments were stupid: he should not have suggested that Keynes advocated deficit spending when the economy is far from full employment because he was indifferent to the long run.

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