Search Results for “eurozone” – Page 4 – William Mitchell

Why would any nation want to join the Eurozone?

September 13, 2012
bill
European Union
14 Comments

The Wall Street Journal carried an article on Wednesday (September 12, 2012) – Latvia Remains Keen on Euro – which reported that the queue to enter the Eurozone remains healthy. I immediately asked why? There is a queue of nations (east and Baltic) who desire to join the Eurozone. The public debate in those countries must be so distorted by the elites for the public to go along with that. The very small gains that a nation might enjoy by joining the common currency (for example, lower transaction costs) will be dwarfed by the economic damage that membership will bring. Nations that join the Eurozone in its present structure are effectively signing a death warrant. The speed of the death will be a direct function of how competitive they are in relation to Germany. There is no case to be made for Latvia or any other nation to enter a monetary system that is incapable of effective functioning. Major changes would need to be made to the basic design of the system for it to be viable. I sense that there is no will in Europe to make the necessary changes and the zone will continue its slide down into further malaise. Why would any nation want to join the Eurozone?

The Eurozone is both a spectacular failure and a spectacular success

One of the ways I judge whether an economy is working is whether it is able to provide enough work for those who desire it (both in number of jobs and hours of work). That is, an economy that generates purely frictional unemployment with underemployment eliminated. I know that there are many that think that emphasis is old-fashioned but those opinions are mostly provided by those that have secure, well-paid jobs. The latest Eurostat European Labour Force data, May 2012 shows that the policy framework in Europe is failing dramatically against my benchmark with the unemployment rate is now at its highest level in the Eurozone since the currency union began. I judge the Eurozone to be a failed “state”, in need of a dramatic change in policy approach. At the same time I consider it to be spectacularly successful. Time to explain …

Why the Eurozone is destined to fail

Last night I gave a keynote presentation in Melbourne at the – Can the Eurozone survive its Crisis? – which is hosted by the Monash University European Union Centre. The event was well attended and the chaired by the Ambassador and Head of Delegation of the European Union to Australia and New Zealand David Daly. He closed the night by saying that we shouldn’t judge the Eurozone because it is a “work in progress” and the elites are on the case. The question of-course, is – how long must the millions of unemployed and disadvantaged wait? How many more well-catered for Summits in Brussels must the citizens tolerate? The discussant for my paper was a free market self-confessed right-winger who ended up agreeing that the Eurozone is doomed. Along the way he demonstrated a lack of understanding of basic economics and eventually had to raise Weimar as his major attack on government spending. Apparently, he also thought full employment was undesirable. A picture of Von Hayek appeared at one point. The other panel member was Dr Natalie Doyle who is currently acting as the Head of the Centre and an authority on European culture and politics. I have been travelling today and so have had little time to write. But I thought I would just share a few things with you that arose from last night’s seminar.

The UK government in a race with the Eurozone to ruin their economies

I am in Darwin today – right in the North of Australia. This is the frontier of Australia and merges our nation with Asia to the north. The dry season has just started and so the tropical weather today is glorious – warm and sunny and dry! It is a 6 hour flight from Newcastle and a remote part of our nation despite Darwin being one of our capital cities. But the world is not very far away from anywhere these days in terms of information access and so it is hard to avoid reading the latest data from around the world and analysing it. The news from Europe over the last 24 hours is shocking and the responses by leading politicians is worse. Just as the British Office of National Statistics was announcing that the UK has achieved a double-dip recession for the first time since the 1970s – an achievement that the Government will no doubt erroneously claim is the work of others – Bloomberg published a story (April 25, 2012) – Merkel Pushes Back Against Hollande Call to End Austerity Drive which tells you how far out of touch with reality the Euro leadership is. The UK government is working as hard as it can to undermine its own economy so it can catch up with the Eurozone economies in the race to the bottom of the slime. It beggars belief really. When will the citizens revolt?

The Eurozone has failed – time for an orderly retreat

The voice from the parallel universe announced that “The euro as a currency is a great success indeed … it is backed by remarkable fundamentals” and harsh fiscal austerity is “the best way to get sustainable growth and job creation”. The only problem is that the voice was none other than the retiring ECB boss Jean-Claude Trichet as he prepared to retire from his post in October 2011. During his term, Trichet was constantly preaching how the introduction of the Euro was a “success”. The only problem is that it is hard to reconcile that conclusion with an examination of the actual data. The Eurozone has failed and an orderly dismantling of the entire monetary system with a return to floating sovereign currencies is the only way that any semblance of prosperity will return.

February 3, 2012
bill
European Union
16 Comments

I had an interesting meeting in Melbourne yesterday and the topic of the discussion, among other things, was the propensity of the current economic malaise in Europe to invoke associations with its historical past – in particular, the rise of the ugly German. In my blog earlier this week (January 30, 2012) – Greece to leave the Eurozone and become a German colony – one might have been tempted to conclude that I was invoking memories of the Germany’s annexation of Austria (the Anschluss). I even used the word Teutonic – a rather old-fashioned term for Germanic peoples (broadly) – in the phrase “My how audacious our Teutonic friends have become!”. This was in a discussion about the leaked German document which urged the EU Summit on Monday to effectively put Greece into receivership. But in fact, what I have been at pains to bring to the public debate is not an urging that we construct the current nasty statements from German politicians and its press about lazy Greeks etc in terms of these historical enmities but rather see them for what they really are – deeply flawed macroeconomic reasoning. A thorough understanding of macroeconomics would lead to the conclusion that the German model is not workable for the Eurozone. It will not help Germany nor anyone else. It is a deeply flawed economic doctrine that reflects the same neo-liberal ideology that led to the the original design of the European Monetary Union. Whether the “ugly German” is also implicated is another question altogether.

January 30, 2012
bill
European Union
20 Comments

The Euro leaders are having another Summit in Brussels today – another one – the 17th in two years. I think they are getting used to the nice wine and sumptuous food that is served up. Little ever comes from these summits that is of any productive import. This time they plan to set in concrete balanced budget rules to be embedded into the national legislation of EU member states yet at the same time propose job creation and growth strategy. The job creation strategy is allegedly going to focus on the youth of Europe who are becoming unemployed and excluded in increasing numbers as time goes by. The lunacy is that Europe’s youth started losing their jobs some years ago yet the leaders are now expressing concern. Also over the weekend, there was a leaked German proposal for today’s summit detailing how Greece should leave the Eurozone and become a German colony. My how audacious our Teutonic friends have become!

January 4, 2012
bill
European Union
4 Comments

The current Eurozone crisis is getting worse and has concentrated our minds on the most recent period of European history. As in all these situations where focus is very immediate our memories get a little blurred and we are inclined to accept propositions that closer analysis of the data suggest do not hold water. January 1 was the tenth anniversary of the date when Euro notes and coins began to circulate. It had of-course been operating since January 1, 1999 but only in a non-physical form (electronic transfers etc). If you believe the rhetoric from the Euro bosses in the first several years of the Euro history and didn’t know anything else you would be excused for thinking that it was a spectacular success. The Celtic Tiger, the Spanish miracle, the unprecedented price stability and all the rest of it. But the reality is a little different to the hype. The fact is that the common currency did not deliver the dividends that were expected or touted by the leaders leading up to the crisis. All the so-called gains that the pro-Euro lobby claim were in actual fact a sign of the failure of the design of the union although it took the crisis to expose these terminal weaknesses for all to see. My view is that the Euro was failing from day one and it would be better to disband it as a failed experiment that has caused untold damage to the human dimension.

Bailouts will not save the Eurozone

We are back onto Greece again today as the crisis deepens. Overnight Spain is appearing to be under bond market pressure and the Germans are calling for even harsher fiscal rules to be applied to keep member states “solvent”. The point is that none of the remedies being proposed will ultimately work. What is needed in the Eurozone is a major boost to aggregate demand. However, the policy direction is to further undermine spending in the member economies as austerity measures are being imposed throughout. This foolish reverence of the Stability and Growth Pact will worsen things. The problem in the EMU is that the basic design of its monetary system is flawed and the accompanying fiscal rules only accentuate those design flaws. None of the remedies being proposed by Euro leaders will work and the bailouts will not save the Eurozone. It has to fundamentally redesign its system or disband.

The dysfunctional logic of the Eurozone and its downward spiral

A brief blog about the Eurozone today given I am travelling later on in the morning (Thursday, US time). Events in recent days are further exposing the absurd logic inherent in the design of the monetary system arrangements that the EMU member nations signed up for. The sovereign debt crisis that has so far be confined to Greece is now spreading to other member nations (Portugal and Spain). Further, the concerns over sovereign risk are now spreading into the commerical banking system and the logical extension of that are bank runs and a closure of the entire payments system. The reluctance to provide any EMU support for the beleagured Greece and the posturing by Germany is now being overtaken by these events in recent days. The initial “bailout” offer to Greece that took so long for the EMU bosses to make – given it rendered their claims to have constructed a stable sustainable monetary system absurd – now pales into insignificance. Much more support will be required and soon. But even that will not solve the structural flaws in their system. They would be better just abandoning it and maintaining political ties to stop them invading each other. After all, it was the tensions after the Second World War that have, in no small part, driven these flawed attempts at union anyway.

April 11, 2024
bill
Politics, Reclaim the State, Reclaiming community
11 Comments

When I was in London recently, I caught up with my good friend Carlos García Hernández, who is a Spanish radical and has a book publishing business – Lola Books – in Berlin, which publishes in English, German, Spanish and Italian. He gave me a copy of his own recently published book (2023) – Fiat Socialism – to read on the way home. It carries the sub-title ‘Achieving the goals of socialism through modern monetary theory’. I promised him that I would write some comments about it once I had taken it all in, even though I had read and sent him comments on earlier drafts. So today that is what I am going to do. At the outset, it is an important book because it addresses many of the misconceptions that Marxists and socialist-leaning people have regularly demonstrated about Modern Monetary Theory (MMT). I am in accord with much of the content but depart critically from his endorsement of nuclear energy as a solution to the climate crisis.

April 10, 2024
bill
Climate change, Coronavirus, Demise of the Left, European Union, Fiscal policy, Music
8 Comments

It’s Wednesday and we have discussion on a few topics today. The first relates to the new agreement between the European Parliament and the European Council that was announced on February 10, 2024, which purports to reform the fiscal rules structure that has crippled the Member States of the EMU since inception. The reality is that the changes are minimal and actually will make matters worse. I keep reading progressives who claim the EU fiscal rules are no longer operative. Well, sorry, they are and the temporary respite during the pandemic is now over and the new agreement makes that very clear. I also express disappointment that high profile progressives continue to misrepresent Modern Monetary Theory (MMT) as they advance their own agenda, which effectively provides support to the sound finance narratives. Then some updated health data which continues to support my perspective on Covid. And then some anti-fascist music. What’s not to like.

Claims that mainstream economics is changing radically are far-fetched

I have received several E-mails over the last few weeks that suggest that the economics discipline is finally changing course to redress the major flaws in the curricula that is taught around the world and that perhaps Modern Monetary Theory (MMT) can take some credit for some of that. There has been a tendency for some time for those who are attracted to MMT to become somewhat celebratory, even to the point of declaring ‘victory’. This tendency is not limited to the MMT public who comment on social media and the like. My response is that we are probably further away from seeing fundamental change in the economics profession than perhaps where we were some years ago – after the GFC and in the early years of the pandemic (which continues). My answer reflects the incontestable fact that the make up of faculties within our higher education systems has not changed much, if at all, and the dominant publishing and grant awarding bodies still reflect that mainstream dominance. There is still a lot of work to be done and a lot of ‘funerals’ to attend (à la Max Planck).

Not trusting our political class is no reason to avoid introducing progressive policies

There is a consistent undercurrent against Modern Monetary Theory (MMT) that centres on whether we can trust governments. I watched the recent Netflix documentary over the weekend – American Conspiracy: The Octopus Murders – which reinforces the notion I have had for decades that there is a dark layer of elites – government, corporations, old money, criminals – that is relentlessly working to expand their wealth and maintain their power. Most of us never come in contact with it. They leave us alone and allow us to go about our lives, pursuing opportunities and doing the best we can for ourselves, our families and our friends. But occasionally some of us come into contact with the layer and then all hell breaks loose. The documentary started with a journalist being killed because he had started penetrating an elaborate conspiracy which began with the US Department of Justice stealing software from a company and then multiplied into money laundering scams (Iran contra), murder of various people who got in the way, and went right up to Ronald Reagan, George Bush and other senior politicians. It was a sobering reminder. I will write more about this topic in the upcoming book we are working on (with Dr L. Connors) but I was reading some articles over the weekend (thanks to Sidarth, initially) about the way the MGNREGA in India, which is a public job guarantee-type scheme has been corrupted as the ideology of the government shifted and it bears on this question of trust.

February 29, 2024
bill
Britain, Central banking, Fiscal policy, UK Economy, US economy
12 Comments

When I was in London recently, I was repeatedly assailed with the idea that the Liz Truss debacle proves that the financial markets in Britain are more powerful than the government and can force the latter to comply with lower spending and lower taxes. It seems the progressives have a new historical marker which they can use to walk the plank into conservative, sound finance mediocrity. For decades it was the alleged ‘IMF bailout of the Callaghan government in 1976’ when Chancellor Dennis Healey lied to the British people about running out of money and needing IMF loans to stay afloat. They, of course, never needed any loans but Healey and Callaghan knew the people wouldn’t know that and they used the fiction as a vehicle to keep the trade unions in a subjugated position. That lie has resonated for years and has been a principle vehicle for those advocating smaller government, more privatisation, and more handouts to the top-end-of-town while at the same time cutting welfare payments to the poor, killing the national health system, degrading public utilities, transport and education and all the rest of it. Well now that gang, which now rules the Labour Party in Britain has a new fiction – the ‘Truss surrender to the markets’. And the logic is spreading elsewhere with lurid claims emerging that the so-called bond vigilantes are saddling up to force the US government broke.

Fiscal austerity does not on average reduce public debt ratios

The resurgence of economic orthodoxy is a great example of how declining schools of thought can maintain dominance in the narrative for extended periods of time if the vested interests are powerful enough. In the case of the economics profession, mainstream New Keynesian theory persists because it serves the interests of capital. Recently, the IMF urged the Australian government to engage in ‘fiscal consolidation’ in order to support further interest rate hikes by the RBA aimed at reducing inflation quickly. In general, the IMF is urging nations to engage in fiscal austerity in order to bring their public debt ratios down. The problem is that even their own research shows that these fiscal adjustments on average do not succeed. And, usually, they leave a damaged society where the lower income and disadvantaged cohorts are forced to endure the bulk of the negative effects.

RBA monetary policy decision represents a terminally broken policy model in Australia

Yesterday (November 7, 2023), the Reserve Bank of Australia raised its policy rate target for the 12th time since May 2022 by 0.25 points to 4.35 per cent. It was an unnecessary increase, just like the eleven increases that preceded it. And, from my perspective it represents a broken policy model. The RBA policies are transferring income and wealth from poor to rich at rates not seen before in this country. They are pretending that the inflationary episode is demand-driven (excessive spending) whereas the data shows that it remains a supply-side phenomenon and the major drivers will not fall as a result of interest rate increases. In fact, one of the major drivers – rents – are rising because of the interest rate rises – RBA is thus causing inflation. The RBA is systematically wiping out wealth at the bottom end and transferring to the top end. The cheer squad for these rate hikes are the wealthy shareholders of the major banks who are recording record profits. A broken model indeed.

IMF paper on Africa exemplifies why the mainstream approach is problematic

During the – 1997 Asian financial crisis – when the IMF intervened and imposed harsh structural adjustment packages on the impacted countries (cuts in spending and interest rate hikes), we learned that IMF officials would swan in from Washington to, for example, Seoul, for a weekend, hole up in expensive hotels and by the end of the weekend profess to know everything about the country and what was good for it. Austerity followed. This is the way the IMF work. They apply mainstream New Keynesian macro theory on a one-size fits all basis ignoring history, culture, institutional specificity and all the rest of the nuances and complications that should be taken into account when appraising a situation in some nation. So for them, spending a day or so in some expensive hotel was the perfect place for them to ‘know the country’ – good food, good wine, air conditioning – what more is required. The problem is that besides the specifics that always need to be considered, the overriding theory is not fit for purpose, which is why the application of the IMF-model with the SAPs has been a uniform disaster for nations. The IMF though continues to operate in this vein. I read a report yesterday about sub-Saharan Africa written by a series of IMF officials most of whom seem to be French citizens who have gone to the best universities, who advocate harsh fiscal policy shifts in the poorest nations. I am sure none of their jobs or wages are at stake.

Be careful using first release data – Britain now surges ahead of Europe!

In May 2023, when the British Office of National Statistics (ONS) released the March-quarter national accounts data (first estimate), which showed that real GDP grew by only 0.1 per cent in the first quarter and a rate equal to the December-quarter 2022, the critics were out in force. Brexit this. Brexit that. Graphs were created showing that Britain was recording the worst growth across the G7 nations. Brexit this. Brexit that. The Labour Party was cock-a-hoop as they continued the purge of the progressive elements in the Party. Then the second estimate came out on June 30, 2023 using additional data which the ONS said provides ‘a more precise indication of economic growth than the first estimate’, we learned that GDP “increased by an unrevised 0.1% in Quarter 1”. Brexit this. Brexit that. William Keegan who is like a cracked record stuck in a rut, wrote more UK Guardian articles bemoaning the democratic choice to leave the European Union. The problem is that all this data-centric inference was based on an illusion, which is why one must always be circumspect when dealing with this sort of data. The latest national accounts data released by the ONS on Friday (September 29, 2023) revised the first quarter result – scaling it up by a factor of three – to 0.3 per cent, which is still slow but hardly the disaster the pundits claimed.

Claiming the European Union is close to full employment defies the meaning of language

Last week (September 13, 2023) in Brussels, the President of the European Union delivered her annual – 2023 State of the Union Address. We all know that these events are spin-oriented and the leader of the 27-nation bloc is hardly going to come out and talk the arrangement down. But this was an election speech – with the next major elections coming in the year ahead. The President lauded all the half-baked and under-funded programs that they have initiated under her ‘leadership’ and when it came to assessing the state of the labour market she made the extraordinary statement that as a result of Commission policies (such as – SURE) “Europe is close to full employment.” Yes, they are spinning the view that the problem is not a lack of jobs but “millions of jobs are looking for people” while admitting that “8 million young people are neither in employment, education or training” – the so-called NEET generation. Language should above all else convey meaning. Trying to claim that Europe is close to full employment violates that basic aspiration. The reality is that Europe is nowhere close.