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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 ]

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