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I see this as a political crisis, one of not enough Europe and too much nationalism, and I still fail to see how this is incompatible with what you say. You want to get rid of the Maastricht straightjacket, and I want a EU budget. Maybe it's not politically realistic today, but is it wrong?

I see this as a macroeconomic crisis brought about by ideological and incompetent economic design of the Eurozone. It's not about the "Maastricht Straitjacket". It's about the single-minded focus on monetary variables to the exclusion of what really matters, trade imbalances, current account imbalances and structural unemployment. The political crisis just makes the structural macroeconomic crisis impossible to solve, but in fact given the pitiful state of economic thought in the EU policy establishment, the political crisis is the least of our problems. The economic advice that politicians are getting and the very public pronouncements of the ECB council members and central bankers would be enough to sink the Euro even without nationalistic politicians at the helm. Just consider that the new BuBa chief said at his inauguration that financial stability should be subordinate to "price stability" and that Merkel wanted the guy to chair the European Financial Stability Board (!)

And if the crisis is resolved somehow without instituting some sort of negative feedback loop on trade imbalances, it is guaranteed that it will blow up again.

You may find this piece interesting and instructive: On the Political Economics of Dominic Strauss Kahn's Political Death

Back in January (of 2011), DSK was being interviewed by a BBC Radio journalist in the context of a documentary on the history of the IMF. Toward the end of the program, I heard the distinctive voice of DSK responding to a journalist's question about how the global economy ought to be reconfigured in the aftermath of the 2008 Crisis. His astonishing answer was:
Never in the past has an institution like the IMF been as necessary as it has been today... Keynes, sixty years ago, already foresaw what was needed; but it was too early. Now is the time to do it. And I think we are ready to do it!
This was, in my estimation, a bombshell of a programmatic statement by the IMF's Managing Director. What was he referring to? He was, of course, referring to Keynes' powerfully put argument (in the context of the 1944 Bretton Woods conference) that a system of fixed exchange rates cannot survive for long without an automated mechanism that treats (a) systematic trade surpluses and (b) systematic trade deficits as the different sides of a problematic coin.


As I have explained in some detail (see here for example) the poignancy of an SRM [Surplus Recycling Mechanism] (and of its absence), I shall desist from repeating it here. Suffice to point out the political and economic significance of DSK's endorsement of Keynes' suggestion and, in particular, the determined statement that Keynes was ahead of his time but not, after the Crash of 2008, "Now is the time to do it. And I think we are ready to do it!"


Within Europe, the prospect of a French President who believes strongly (and is prepared to back up his convictions with a formidable analytical panoply) that the eurozone cannot survive without a Surplus Recycling Mechanism (which channels German surpluses to the deficit countries in the form of productive investment) had the potential radically to alter the political and economic agenda of the continent. It would, in particular, offer an invigorating counterpoint to the current mental incapacity to come to terms with the deeper causes of the euro crisis and to, at long last, recognise that the debt crisis is a symptom, not the cause of the string of failures that threaten the eurozone's very existence.

(Yes, I've read a goodly chunk of Varoufakis' blog today)

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon May 30th, 2011 at 06:34:45 PM EST
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