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The Eurozone's giant sucking sound | 136 comments (136 topical, editorial, 0 hidden)
Re: The Eurozone's giant sucking sound (4.00 / 6)
Transfers directed at correcting the historical shortage of capital investment in the periphery relative to the core would go a long way towards improving the productivity of periphery workers. The same worker working with their bare hands is less productive than with the right tools. That's why one possible way for the transfers to happen would be to give the money directly to the European Investment Bank, and also relax the requirement that the recipient member state contribute matching funds to the EIB's.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Carrie (migeru at eurotrib dot com) on Wed Aug 29th, 2012 at 03:40:05 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (4.00 / 3)
This crisis makes the "matching funds" requirement look particularly crazy.

It's also crazy outside of crisis when you think of new entrants starting from a low base.

by Metatone (metatone [a|t] gmail (dot) com) on Wed Aug 29th, 2012 at 03:47:55 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 0)
Some level of funds-matching makes excellent sense, to avoid the recipient spending the money just to spend the money. Of course in the present situation, spending the money just to spend the money is objectively superior to not spending it at all. But that's not always the case.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 29th, 2012 at 05:23:26 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (4.00 / 4)
The investment could also be undertaken entirely by the EIB, including the oversight of the project. If the recipient cannot take advantage of EU monies for one reason or other it is a failure to insist on an interpretation of "subsidiarity" that prevents the federal level from being "the closest instance that can get it done".

See, for instance, Cash dash: Tapping the EU funds Deadlines loom as officials struggle to retrieve millions of euros from Brussels (August 1, 2012)

Negotiations between the Nečas government and Brussels officials have prevented the country from losing billions of euros worth of European Union subsidies, but fast-approaching deadlines and issues of future disbursements continue to pose a risk for the Czech economy.

Some 60 billion Kč in payments for development projects will again flow into the country after government representatives agreed to address concerns over the administration of jointly funded programs July 23.

The funds were frozen by the European Commission (EC) in March due to misallocation, and some programs will continue to be on hold pending further scrutiny, Prime Minister Petr Nečas said.

If the Brussels/Frankfurt consensus is set on giving the EU power over national budgets in their entirety, why can't they say that in case structural funds are affected by issues of local mismanagement or corruption the EU level will direct the projects?

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Carrie (migeru at eurotrib dot com) on Wed Aug 29th, 2012 at 05:41:07 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (4.00 / 2)
Which is to say, maybe the "carrot-and-stick" philosophy applied to local politicians by the federal level isn't the best way to ensure that the local population benefits from federal action.

More faulty "the state as a household" metaphors?

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Carrie (migeru at eurotrib dot com) on Wed Aug 29th, 2012 at 05:43:10 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 0)
...why can't they say that in case structural funds are affected by issues of local mismanagement or corruption the EU level will direct the projects?

The important thing is that the funds get spent in the intended country in a manner that most benefits the local economy. The danger is that neo-liberal capture of EU institutions will lead to conversion of such funds to private looting by the most powerful interests.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Aug 29th, 2012 at 09:07:42 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (4.00 / 2)
Improving periphery productivity without increasing demand will just make unemployment worse. -
The basic problem is that productivity and wages have to follow each other, or the economy comes under ever increasing strain until it simply falls apart.

 This is so very obvious that it ought to be in the economy 101 syllabus, except economics is not actually about the economy anymore, but has degenerated into a branch of political retoric.

by Thomas on Thu Aug 30th, 2012 at 01:25:46 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (4.00 / 2)
You also need to improve German domestic demand, of course.

The point is that the wage differential between core and periphery, and the current account imbalance, is not going to go away unless you do all of these things.

Blowing the Eurozone apart would work too, of course, if and only if it is replaced by a floating exchange rate system.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Carrie (migeru at eurotrib dot com) on Thu Aug 30th, 2012 at 02:53:18 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 1)
It would certainly add a lot of financial fees and intermediates to inter-eurozone trade, as european industry tries to insure its supply chain against unpredictable currency shifts. Im not sure if this entirely predictable negative would be larger than the positives, but I do know that massive shocks have a strong tendency to not work out well for the common citizen, so as a solution, it sucks.

More constructively: It ought to be pointed out to the german people that what is needed is higher real german wages. I see arguments for more higher wages in germany in the press on occasion, but mostly this is phrased in terms of higher inflation, which is the worst possible rethoric one could possibly choose to sway the german public opinion.
What we need are arguments for a virteous cycle exit from the crisis that are as effective, intuitive and persuasive as the false "swabian housewife" analogy is.
"Economic austerity in a crisis is like tightening your tie because your pants are falling off. It doesnt help, and makes it very hard to breathe"

by Thomas on Thu Aug 30th, 2012 at 06:53:39 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 1)
It would certainly add a lot of financial fees and intermediates to inter-eurozone trade, as european industry tries to insure its supply chain against unpredictable currency shifts.

Have the CB act as market maker in currency swaps, at no charge.

Im not sure if this entirely predictable negative would be larger than the positives, but I do know that massive shocks have a strong tendency to not work out well for the common citizen, so as a solution, it sucks.

If you have the CB buy foreign currency in sufficient volume to match gross outstanding domestic hard currency liabilities (and take any bank that helps a Soros attacker naked short your currency out back to be shot), you won't get massive exchange shocks. Unless you have a massive supply-side shock. But if you have a massive supply side shock, the alternative to an exchange rate shock sucks even worse.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 30th, 2012 at 07:46:04 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 1)
If instead of the usual exchange-rate-mechanism "snakes" or "bands" each country had a commitment to not allow its currency to appreciate more than x% with respect to any of the other ones, then you would have a system essentially invulnerable to Soros attacks. You can make x% as narrow as you like, though considering FX volatility is about 1% per day, anything narrower than 2 to 3% would require too frequent intervention by the central bank as a market maker (usually seller) in its own currency. Then you can add Jake's idea that the central bank could also be a market maker in currency swaps to help their domestic banks hedge the FX exposure of the domestic import/export sector.

And then you can have actual employment-oriented economic policies in each member state instead of a race to the bottom and games of chicken (always won by the central bank with the undervalued currency) when exchange rates get close to the edge of the "snake".

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Carrie (migeru at eurotrib dot com) on Thu Aug 30th, 2012 at 08:46:06 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (4.00 / 4)
Both of these suggestions assume central banks that are competent and non-malign. And if we had central bankers like that, the eurozone would not be in trouble.

The fix you are suggesting is to first break up the eurozone, and then replace the boards of the national banks with people who give a frack about the real economy and employment. But if you are willing to fire central bankers, why exactly do you need to break up the eurozone? Just go directly to the part of your perscription that is actually helpful, and sack the board of the ECB on grounds of incompetence.

by Thomas on Fri Aug 31st, 2012 at 09:34:40 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 1)
Well, duh.

Which is to say, we actually agree on the fundamentals.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Carrie (migeru at eurotrib dot com) on Fri Aug 31st, 2012 at 10:01:55 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 0)
But if you are willing to fire central bankers, why exactly do you need to break up the eurozone?

Because sacking the board of the ECB is not legal under federal law, and changing the federal law in question requires 50 % +1 of the vote in even the most backwards, recalcitrant member state.

Whereas firing the national central bankers after withdrawing from the Eurozone would require only 50 % +1 of the vote in any state which wishes to adopt a sanity-based policy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 31st, 2012 at 10:19:22 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 0)
I'm not sure that's the case, though. The appropriate articles of the EU treaties apply to all EU member states as EU member states, not to Eurozone member states.

Which is why the EU could complain about Hungary infringing on Central Bank independence last year.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Carrie (migeru at eurotrib dot com) on Fri Aug 31st, 2012 at 10:21:46 AM EST
[ Parent ]
Possession's 9/10ths of the law (n/t) (none / 0)


Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 31st, 2012 at 10:29:10 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (4.00 / 2)
But there is another option then sacking the board. The Governing Council could issue new instructions and see what happens. To do that 50 % +1 of the vote is needed to replace CB managers in six to twelve member states, since the six members of the executive board also are members of the Governing Council.

Starting that and preparing for a withdrawal can be done at the same time, since grabbing control over the central bank is important in both cases.

And as usual I suggest firing the CB boss for taking part in a conspiracy to subvert the EU treaties, which probably constitutes treason under national law. Let the CB boss appeal that to the Court.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Aug 31st, 2012 at 12:51:28 PM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 0)
You are assuming that a transfer will be used to increase productivity. I argue that "it depends" and actually has decreased productivity in some cases. One example:

In Portugal, the massive transfer that was made when joining the EU was used to build a motorway network and destroy the train network. This on the view that trains are for poor people ("and we are not poor anymore, we are European(tm)") and that cars are more efficient than trains.

I think most people in this discussion are thinking in "economese" terms, whereas the local culture makes a massive difference.

Yes, a transfer can be used (should be used) to increase productivity, but that is not always the case.

Actually the neo-lib argument of the need for "structural reform" makes sense. Of course, the needed reforms have little to do with what neo-libs defend. Example, what the periphery needs is a dose of colectivism (e.g. more efficient public transport, more respect for public spaces), not more individualism (more cars...)

by cagatacos on Thu Aug 30th, 2012 at 10:25:28 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 1)
The point is not that transfers are sufficient. The point is that they are necessary. No transfers implies no solution. It does not from this follow that transfers implies a solution.

But that is an internal Greek/Portuguese/Italian/Irish matter, that is really not my business. (And designing an industrial policy from the ground up is a non-trivial effort, and I insist on being paid for non-trivial efforts.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 30th, 2012 at 10:32:38 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 0)
It is not just an internal problem if the money is used to dig an even bigger hole, this further increasing the divergence.

Why should surplus nations sustain silly policies (other than the interest of sharing a devaluated/more-competitive currency)?

by cagatacos on Thu Aug 30th, 2012 at 10:55:41 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (none / 0)
Why should surplus nations sustain silly policies (other than the interest of sharing a devaluated/more-competitive currency)?

Because they want surpluses and fixed exchange rates at the same time.

They're perfectly free to pick another pair of objectives from the set.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 30th, 2012 at 11:12:04 AM EST
[ Parent ]
Re: The Eurozone's giant sucking sound (4.00 / 3)
Under the police regime of automatic transfers from surplus countries to deficit countries, if they do not wish to sustain those silly policies, they only need to abandon the aggressively destructive strategy of pursuing a surplus.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sat Sep 1st, 2012 at 01:31:43 PM EST
[ Parent ]

The Eurozone's giant sucking sound | 136 comments (136 topical, 0 editorial, 0 hidden)
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