Today’s blog post considers the Australian election and some issues that arose from my recent trip to Scotland – all of which bear on the progress of our work in the public debate. In Australia, we have just held a federal election and it was expected (and certainly the polls and bookies expected) that the Labor Party would win easily after 6 shocking years of conservative rule. Those 6 years have been marked by scandal, three leaders (Prime Ministers), massive internal divisions within the government, on-going climate change denial and a slowing economy. But Labor was thrashed in the election and I offer a few reasons why I think that happened. For Scotland, as they debate independence in the lead up to another referendum (as yet unscheduled) they have been struggling with the choice of currency issue and whether the new independent nation should join the EU. After initially thinking they would stick with the British currency for some time, the debate has swung heavily in favour of introducing their own currency as soon as is possible after the independence is achieved. Clearly, I have favoured that option for several years. But the overwhelming thinking is that the new nation should join the EU. That is a choice that I think would bring grief. And given the fact that the rUK will retain “continuing nation” status, a newly independent Scotland would be under significant pressure to use the euro. In other words, the currency choice and EU membership trends at present are incompatible. During my visit there I urged the activists to ditch their pretensions for EU membership and become truly independent.
This is the second and final part of my series on Scotland as I prepare for a visit to Edinburgh and Glasgow this week. You can see the details from my – Events Page – and I urge interested readers to support the events that are run by activists. I will be talking about issues pertaining to the monetary arrangements that might accompany a move to Scottish independence. I have noted in the past that this is a controversial issue in itself that is also made more divisive because it has become intertwined with the vexed issue of EU membership. In Part 2 I provide a detailed critique of the so-called ‘six tests’ that the Scottish Growth Commission put forward as being determining factors as to when Scotland could move off the pound. I find the tests to be just neoliberal artifacts designed to keep Scotland on the pound indefinitely and thus curb any real independence. I also consider issues such as EU membership. And I provide some historical details of the way a monetary union might dissolve.
Later this week, I will be in Britain to participate in a series of events. You can see the details from my – Events Page – and I urge interested readers to support the events that are run by activists. Two of these events will be in Scotland where we (Warren Mosler and I) will discuss, as outsiders, issues pertaining to the monetary arrangements that might accompany a move to Scottish independence. I have noted in the past that this is a controversial issue in itself that is also made more divise because it has become intertwined with the vexed issue of EU membership. I certainly don’t intend to use these presentations to lecture the Scots on what they should do. What I hope to achieve is to set out a framework based on Modern Monetary Theory (MMT) principles to allow the protagonists to make their own decisions, free of the neoliberal sort of monetary myths that I think have dominated the independence debate to date. I am always cautious discussing the pro and con of situations where I have no direct material stake and a less than full understanding of specific cultural and historical influences that are at work. But the Scottish question is interesting and demonstrates many of points that nations should be cogniscant of when discussing monetary sovereignty.
Eurostat released the latest fiscal data for 2018 on Tuesday (April 23, 2019) which showed that – Euro area government deficit at 0.5% and EU28 at 0.6% of GDP – apparently a cause for celebration if you can believe the news reports that have accompanied the data release. The problem is that these numbers are meaningless without a context. And a relevant context is how well the monetary system is accommodating the advancement of material well-being among the citizens of Europe. On that ‘functional’ criterion, the horror story, more or less continues. Data relating to the real world (as opposed to the world of fiscal numbers on bits of paper) tell us that the damage from the GFC interacting with a dysfunctional monetary system design still lingers and the 19 Member States are still highly vulnerable to the next crisis. The austerity mindset remains and these fiscal outcomes indicate a failure of policy. Nothing to celebrate at all.
Wednesday today and a short blog. I also have to travel a lot today. But some brief comments on an interesting article from French commentator Michel Lepetit – Nourrir le débat sur une annulation partielle (370 mds€) de la dette publique (April 15, 2019) – which means more or less “Promoting the debate on a partial cancellation (€370 billion) of public debt”. The article proposes that the Banque de France cancels its holding of French government debt (the €370 billion), which could also lead other national central banks in the Eurosystem following suit with respect to their own government debt holdings. He argues that the cancellation (write off) would have no negative social impacts and could help Eurozone governments fund the transition to a low-carbon future. Above all, it reflects an understanding of Modern Monetary Theory (MMT). Michel Lepetit argues that the QE implemented by central banks, especially since the GFC demonstrates the patent failure of the foundations of monetarist dogma (“l’échec patent des fondements du dogme monétariste”).
It appears that the Brexit process in Britain will now stall. My understanding of the Referendum was the majority of British people who voted wanted to leave the EU and that the politicians from all sides of politics unambiguously stated they would honour the outcome, whichever way the vote fell. That is what democracies are about. A lot of people are disappointed by vote outcomes. They have to grin and bear it. But in the case of the Brexit vote, the Remainers have never accepted the outcome and have used various means – foul or otherwise – to undermine the choice of the majority. There have been regional strains involved and social class strains (cosmopolitans and the rest) involved. There have been nasty imputations that those who voted to Leave were ignorant, racist or otherwise not entitled to cast an opinion. The Europhile Left had conniptions because their dream looked like evaporating. I use the term ‘dream’ deliberately – as in, not ground in reality. As the incompetence of the Tory government in managing the exit process reaches new heights – embarrassing heights – the Europhile Left has become emboldened and are now reasserting their claims that the British Labour Party should articulate a clear Remain position and push to reform the prevailing European treaties, which embed neoliberalism in their core. Talk about dreaming.
Its Wednesday and some snippets only today. I was reviewing some data on public investment in the European Union the other day and up popped an article in Barrons that covered the same issue. The data reveals the stark failure of the Eurozone and the European Union, in general. The consequences of the European Union’s ideological obsession for rules over reality is now clearly undermining the future prosperity of the Member States. While the fiscal austerity has created elevated and persistent levels of mass unemployment, increased poverty rates, widening disparities between wealth and income, divergences in living standards across the Member States, what hasn’t been focused on much is the intergenerational consequences of the austerity. The data makes it clear that public investment in infrastructure has ground to a halt and in many cases, nations are not even replacing existing capital as it wears out. The quality and quantity of public infrastructure in place is crucial for general material prosperity and the future productivity of nations. While starving such expenditure may not have political consequences in the short-run – and this is why the austerity is partially focusing on cuts to investment spending – over times as the extant infrastructure deteriorates the the nation and the future generations lose out badly. Just another day in Europe! And across the Atlantic, the Democrats are proposing a ‘Balanced Budget Amendment’ to the US constitution. Madness on both sides of the sea!
I was asked by an Austrian friend the other day if I could provide some questions to a journalist friend of theirs (András Szigètvari from Der Standard) in who was about to interview Sabine Lautenschläger who is Member of the Executive Board of the ECB and former Vice-President of the Bundesbank. I dutifully complied and the – Interview with Der Standard – was published on April 1, 2019. April 1 is known as April Fools’ Day, a tradition that spans continents and culture. In Germany, apparently, April 1 is a day where ridiculous stories are told at the expense of the listener, to elicit uproarious laughter (so-called “Aprilscherz”) (Source). I won’t be as unkind to assert that Ms Lautenschläger was acting out the tradition even though what she was saying could easily be mistaken for a planned ruse. Perhaps the joke was on her!
Martin Höpner, who works at the Max-Planck Institute for the Study of Societies in Cologne, recently sent me a copy of his latest paper – The German Undervaluation Regime under Bretton Woods: How Germany Became the Nightmare of the World Economy (published January 2019). He presented this research at a Makroskop workshop in Wurzburg on October 13, 2018 – I was on the same panel as him at that workshop and enjoyed some very productive conversation about these issues. It is a very interesting historical analysis of the way that the German elites (central bank, industry groups, banks, politicians, and trade unions) have collaborated since the 1950s to suppress domestic consumption and maintain the nation’s export competitiveness, even though this has undermined material prosperity for workers. The relevance of the analysis to current debates about the Eurozone and its capacity for reform are that the undervaluation regime is entrenched in Germany’s institutions, its history, its culture, and its power elites and have been that way for many decades. What the Europhile progressives, who still think reform is possible, have to show is that this entrenched position can somehow be abandoned. They have never provided any convincing argument to substantiate that hope/belief. That is why I continue to call them out as dreamers – good intentions but naive to history.
I am now back to my Wednesday pattern of devoting more time to non-blog post writing and less time to blog post writing. But I was interested overnight in the news that the German government is trying to force (pressure) the partly-state owned Commerzbank (Zombie 1) into a merger with Deutsche Bank (Zombie 2). The result will probably just be a bigger zombie bank. It is unlikely it will reduce the vulnerability that both banks currently face as a result of poor management, risky loan portfolios (greed over prudence), massive debt burdens, and costly, underperforming branch structures (especially in the case of Commerzbank). Another example of the failure of the European Union to provide policy structures that advance prosperity and reduce the risk of crises.