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Guntram B. Wolff is inane.

Unfortunately, I only had that teaser and cannot read the whole article to plumb the depths of his inanity.

(inanity only lacks an s to become insanity)

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Feb 17th, 2012 at 05:28:07 AM EST
[ Parent ]
Here's a few paragraphs from the article: How to deal with Europe's debt challenge By Guntram B. Wolff, 17.02.2012
In such a situation, more exports are necessary as domestic growth is hampered by the deleveraging. To increase exports, competitiveness gains are inevitable and they can be achieved by downward wage adjustments. Wage adjustment will, however, lead to export success only after some time as business needs time to invest. In the short-run, the downward wage adjustment therefore aggravates the situation as wages fall but unemployment remains high. This is why the Troika in its first programme for Greece decided against cutting the 13th and 14th salary of Greek workers. It was feared that the same debt burden would need to be serviced with lower wages.
So, he's basically saying that the Troika went too easy on Greece, that even more pain should have been front-loaded and that the "reforms" have been too slow.
On the internal side, the fiscal consolidation should be made as little harmful to growth as possible by choosing the right mix of spending cuts and tax increases. Bad assets in the banking system resulting from the debt overhang in the household and corporate sector should be recognized with rigorous stress tests. The EFSF funds should be used for bank recapitalization and should be provided to governments at very low interest rates. Addressing these banking problems is central to making sure that credit is available for investment in export industries. Strong competition policy should be used to make sure that wage cuts lead to lower prices of export goods and do not just deliver larger corporate rents. Finally, a supply side agenda with the aim to improve education systems, innovation and business conditions is needed.

Besides domestic reforms, a forceful European policy response is needed. To be able to export, demand in the euro area as a whole needs to be appropriate. In current recessionary conditions, it is very difficult to grow exports. The responsibility of monetary policy in such a context is to avoid a recession and ensure price stability for the euro area as a whole. This means that once inflation rates in Southern Europe fall below 2%, inflation rates in particular in Germany will have to increase above 2%. Monetary policy should allow for such booming conditions in Germany and German policy making should not resist this adjustment. Moreover, fiscal policy instruments at a eurozone level may need to be developed if the recessionary environment deteriorates. A European wide investment strategy, for example in the area of energy transition, would be a potential candidate. Finally, structural funds should be used in a more targeted way to help grow exports in the South. Dealing with a debt overhang and competitiveness adjustment requires an effort by the eurozone as a whole.



tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Fri Feb 17th, 2012 at 05:34:55 AM EST
[ Parent ]
I don't suppose Herr Wolff provides any specifics as to what are and why regarding "the right mix of spending cuts and tax increases"? I do not believe the existence theorem has been satisfied or that it can be.  It is much more likely that a Gödel like proof of the impossibility of such a solution could be found. He is basically invoking fairies. After all, he talks of 'inflation rates' in a country caught in a debt-deflation death spiral.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 17th, 2012 at 09:29:51 AM EST
[ Parent ]
In the first part he's (like others in charge of policy) looking for an excuse to explain why "reforms" aka wage suppression aren't working: too little, too late. Though behind the reasoning he seems uneasily aware that building exports on wage cuts at a time of private-sector deleveraging and recession is... difficult. Yet only exports, he says, can save the economy...

The final paragraph contains some more reasonable points. One is suggesting an anti-recession responsibility for the ECB and admitting that, if there's deflation in the periphery, Germany has to accept inflation. The other is European-wide long-term investment in infrastructure, example energy.

So not entirely in(s)ane.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Feb 17th, 2012 at 10:37:31 AM EST
[ Parent ]
Inane? He's saying the same thing that we are, ie Greek wages must come down. The only difference is that he's arguing they should come down through depression->nominal wage cuts, while we argue Greek wages should be cut via devaluation of the currency.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Feb 20th, 2012 at 12:49:27 PM EST
[ Parent ]
There's a huge difference.

Depression also implies destruction of businessess and employment.

There are ways and ways of reducing the wage bill, if that's what one wants to do.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 12:52:47 PM EST
[ Parent ]
Well, you know I agree entirely with you on that point. But let's not pretend some holier-than-thou attitude. We want devaluation. Devalutation means lower real wages. Period.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Feb 20th, 2012 at 01:13:08 PM EST
[ Parent ]
Would this put pressure on the bottom line of German companies? Sure! But what use is those profits when Düsseldorf just blows them on US mortage-backed securities anyway?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Feb 20th, 2012 at 01:20:47 PM EST
[ Parent ]
Hey, MBS are fixed income. What "investor" in their right mind wants equity risk?

I mean, seriously, we need to stop protecting speculation by idle money.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 03:11:01 PM EST
[ Parent ]
Devaluation means lower wages and lower profits denominated in a hard currency.
I've lived through two major devaluations. The effect on the ostensible quality of life was negligible. This time it is worse than war.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Mon Feb 20th, 2012 at 01:44:58 PM EST
[ Parent ]
Well, if you don't have much trade I suppose that might be the case. But I do think you might have noticed something about the price of food, gasoline, and so on. Furthermore, profits denominated in hard currency do not matter to corporations, as their owners usually have costs in the same currency as the corporation sells in. Further, furthermore, corporations are the main winners in devaluations as they can mark prices up for domestic consumers to compensate for imported goods, while become more competitive in the export markets. Indeed, boosting corporate profits is the main idea behind devaluations.

Now, I could talk about the corrosive effects of serial devaluations in the long run (reduced competitive pressure etc), but I won't as those thing clearly are not relevant in the current situation. or rather, worrying about them right now would be like worrying about a blocked up toilet when the house is on fire.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Feb 20th, 2012 at 01:59:49 PM EST
[ Parent ]
"But I do think you might have noticed something about the price of food, gasoline, and so on"

Compared to now, it was minimal, at the time people whined about it, sure. But unemployment wasn't much affected (or it was absorbed in the black economy - now even that is dwindling), regressive taxes didn't shoot up the roof, rents were not much affected, streets were not emptied of shut down shops etc. Now we live, I repeat, through a disaster of a scale one usually associates with a war.

As for profits: take tourism. Salaries in tourism (not uncompetitive vis a vis the real competitors to begin with) have plummeted while the "opening" of professions has reduced what was once jobs you could make a living off to hobbies... At the same time the large units that work with foreign tourism, are not seeing any decrease in revenues (internal tourism is a different issue, it has been wiped out). So the big hotel owners are making money at the expense of their workers...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Mon Feb 20th, 2012 at 05:45:15 PM EST
[ Parent ]
Price of gas, yes. That gets more expensive.

Frankly, Greece and especially Athens could stand a revamp on that score since there are far too many cars on the road.

But food?

Greece went from 20% imports to 80% in a decade. Greece is the largest importer of French beef, and 15 years ago, Greeks were not beef eaters at all (relatively). In other words, the dynamic has very quickly changed Greek eating habits as well as Greek agriculture. Greece would revert in any devaluation.

Oil is a big concern, of course.

by Upstate NY on Tue Feb 21st, 2012 at 10:10:26 AM EST
[ Parent ]
Devaluation means lower wages and lower profits

Funny you should say that.



tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 03:09:38 PM EST
[ Parent ]
A nice illustration on what labor reform means. Where is the chart from?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed Feb 22nd, 2012 at 12:45:29 PM EST
[ Parent ]
It accompanied an article in the Spanish pink-sheet newspaper Cinco Días.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Feb 22nd, 2012 at 01:06:33 PM EST
[ Parent ]
Data from Spain's INE (National Institutute of Statistics).

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Feb 22nd, 2012 at 01:07:37 PM EST
[ Parent ]
We want devaluation. Devalutation means lower real wages.

True, but misleading. Suppose that price levels are 34 % above where they need to be for balanced trade. Wages are approximately 67 % of GDP. Assuming an import quota of 1/3, achieving balanced foreign trade through wage suppression alone means that nominal wages have to drop by just a hair over 50 %, of which a quarter or so is recouped by the deflationary impact, for a real wage drop of 30-35 %. Add to this the total homeowner and business insolvency that is virtually guaranteed all debt loads are suddenly increased by 34 % in real terms.

For a country which imports to the tune of 1/3 of its GDP, depreciating your way out of a 34 % price level gap reduces real wages by something on the order of 15-20 %. However, the debt load is lightened in compensation, by approximately a full third of the previous real value.

So just in the real wage reduction depreciation is a full 15 percentage points better in this example. And the way the debt load behaves under the two scenarios reinforces this conclusion. And this is before the higher-order costs of imposing a generalised industrial depression are booked to the "wage suppression" option.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 20th, 2012 at 02:24:48 PM EST
[ Parent ]
I'm not saying nominal wage suppression is good, or that devaluation isn't a lot better, because it is. I'm just saying, let's not forget devaluations also mean lower wages, and lower wages are needed. Just not in nominal terms.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Feb 20th, 2012 at 02:28:22 PM EST
[ Parent ]
Not necessarily lower wages relative to domestic prices tough.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 03:07:19 PM EST
[ Parent ]
Except when your domestic production uses imported raw materials or intermediate goods.

Which is always.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 20th, 2012 at 03:16:52 PM EST
[ Parent ]
Still, crucial things like rents do not increase.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Feb 20th, 2012 at 03:22:46 PM EST
[ Parent ]
There's always rent-seeking.

Right now it's patently clear that the moneyed class in Spain is getting ready to milk the working population for what they can. When the country implodes, they'll move to Monaco or Miami or something.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 03:31:09 PM EST
[ Parent ]
If people can't pay the rents, you'll lose tenants, and eventually you'll reduce rents so as to fill your houses to capacity.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Feb 20th, 2012 at 03:32:23 PM EST
[ Parent ]
You know how many dwellings are empty in Spain already because owners will rather not rent them out?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 03:34:27 PM EST
[ Parent ]
In the long run, they will. And yes, yes, in the long run etc...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Feb 20th, 2012 at 03:37:33 PM EST
[ Parent ]
The answer, already, is a whole lotta.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 03:38:39 PM EST
[ Parent ]
probably because it's almost impossible to evict someone, like in France
by stevesim on Mon Feb 20th, 2012 at 03:40:32 PM EST
[ Parent ]
On the other hand, I hear that in Germany there are renters' neighbourhood associations set up to protect unwary renters from the predation of landlords.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 03:56:43 PM EST
[ Parent ]
there are these associations to protect renters but the proprietors often rip off the renters of their Kaution.

 

by stevesim on Mon Feb 20th, 2012 at 04:10:00 PM EST
[ Parent ]
That's also normal in Spain.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 04:10:57 PM EST
[ Parent ]
interesting.  I had never come across that until recently.
by stevesim on Mon Feb 20th, 2012 at 04:19:54 PM EST
[ Parent ]
I mean, what recourse does the renter have?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 04:21:07 PM EST
[ Parent ]
suing the owner in Germany is the norm, with the renter's association giving free legal advice and typing up the forms.
by stevesim on Mon Feb 20th, 2012 at 04:47:29 PM EST
[ Parent ]
Er, when the kaution was 3 rents, I used to stop paying rent 3 months before I moved out. Just to save the owner the trouble of transferring the money. I thought it's only a problem if the kaution is so high that an eviction would take less time. More than 3 rents wasn't allowed, though, and I believe this hasn't changed.
by Katrin on Mon Feb 20th, 2012 at 05:11:43 PM EST
[ Parent ]
In Bavaria, they take it out of your bank account. And they don't stop even after you leave.....
by gk (gk (gk quattro due due sette @gmail.com)) on Tue Feb 21st, 2012 at 02:13:38 AM EST
[ Parent ]
"Lastschriftverfahren", I know. Too few people know that the bank transfers the money back to you if you only raise a finger. It's a method that is based on trust: the bank transfers money from your account to someone who claims you allowed that without asking questions. If you protest, they transfer it back, and again without questioning if the other party might be entitled to the money.
by Katrin on Tue Feb 21st, 2012 at 06:08:56 AM EST
[ Parent ]
Which is exactly what I did. Only problem was that I had left enough money in my account to cover my last electricity and phone bills. The landlord took an additional month's rent, despite the fact that there was not enough money in the account for this. They then refused to pay the other bills, as my balance was negative....
by gk (gk (gk quattro due due sette @gmail.com)) on Tue Feb 21st, 2012 at 06:18:54 AM EST
[ Parent ]
Oh shit. I hope you raised hell and the landlord's standing with the bank was not too good.
by Katrin on Tue Feb 21st, 2012 at 06:26:29 AM EST
[ Parent ]
And in the U.S. Germany is just like stevesim says (though my experience was with Bavaria....) But I had no problem getting mine back in Belgium. I've no idea if this is typical, or whether this was because the owner was grateful to me for staying until the end of the lease, the previous tenant having broken it unexpectedly to move to the local jail.....
by gk (gk (gk quattro due due sette @gmail.com)) on Mon Feb 20th, 2012 at 04:26:37 PM EST
[ Parent ]
It's known to happen in France.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Feb 20th, 2012 at 04:28:01 PM EST
[ Parent ]
This must surely be the reason why tenants in France never pay the rent. They can't be evicted, so why bother?
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Feb 20th, 2012 at 04:02:49 PM EST
[ Parent ]

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