On his blog. Here, I’d like to share the conclusion (my bold). The whole text is quite dense and in places technical, but worth a read, especially now when in Finland all the major political parties compete over how large budget cuts they intend to make after the elections.
The reason that unemployment rose so sharply in the Euro countries between 2008 and 2014 has nothing much to do so-called trade imbalances or differential ULCs.
Those imbalances (as they call them) and different ULCs are not new. What happened in 2008 was a major aggregate spending collapse which was then reinforced by the imposition of austerity.
If I graphed the change in fiscal position (as measured by the differential austerity imposed) and the change in the unemployment rate I would get a very strong positive relationship (more austerity, higher the rise in unemployment rates) which would have some meaning.
That should be the starting point for the European Council – but then that would require them to ask questions about their patently dysfunctional fiscal rules.
In this link from yesterday.
On Syriza: it seems to be clear that Syriza has 149 seats in Parliament, which is two short of an absolute minority. I think Mitchell has a good point about Syriza being contradictory regarding its goals. But there is another issue: Syriza is a kind of coalition of various parties, and although I do not profess to know how the Greek political system works, I’d say it is a challenge to get 149 parliamentarians ready for work, given the party structure and the large number of new politicians needed. For the sake of Greece, I hope Syriza will manage internal as well as external pressures, because if it implodes, then voters will surely move to the Golden Dawn nazis.
Regarding the ‘letter of economists’ he writes:
Why not just explicitly state – the European Commission should abandon fiscal rules specified under the Stability and Growth Pact (SGP) and its antecedents – the Fiscal Compact, the Two- and Six-Packs.
There cannot be a pro-growth framework while these fiscal rules are enforced in any way. The GFC proved that the impact of the cyclical effects on the fiscal balances (that is, the loss of tax revenue etc due to the loss of output and employment) were sufficient to breach the 3 per cent limits. (my bold)
Those ‘breaches’ led to the fiscal austerity being imposed.
Further, most Eurozone nations will not be able to run the necessary magnitudes for their fiscal deficits (to favour ‘pro-growth’) under the current terms that restrict the ECB – the monopoly-issuer of the euro – from funding such deficits.
I think this is a very important thing to say out loud. It needs repeating. But at the same time it also makes you wonder what politicians (starting with those who designed Maastricht) were thinking.
I will continue my own path thinking about competitiveness, labour market relations and the EMU. There is change in the air, and it is quite scary.
If you don’t understand the reference, go read 1984. After that, read this post, which in good Dutch ‘maakt gehakt’ (makes ground meat) of the Commission’s forecasts. Again an essential post by Bill Mitchell. It is so important not only to have data but also have a proper model, otherwise it still is “garbage in, garbage out”. If I were an entrepreneur, I wouldn’t rely on these kinds of statistics one but.
Bill Mitchell doesn’t mince words. In a very long and detailed post, he disects how the SGP and Excessive Deficit Procedures (EDP) have been used against Germany in the early 2000s and against France and Italy at the moment. It is worth your time to read it, because right now:
10/18 [Eurozone] nations [are] caught up in the ridiculous bureaucratic procedure, which only kills growth and prosperity.
And from his conclusion:
The history of the EMU to date has taught us that if Germany is unable to meet rules, then the rules will be altered. Otherwise, the rules will be used as a blunt weapon to devastate the employment base and living standards of weaker nations without the political clout of Germany.
The mindless Eurozone rules (German rules) have failed. It is time to move on and get over it.
It is time to abandon the project and release these nations and their people from the growth-sapping, poverty-inducing straitjacket.
In this context I think this paragraph is important:
This is why it is nonsensical to target a particular public deficit ratio (with respect to GDP) because it is so sensitive to private economic activity. The government cannot actually guarantee it will hit a particular outcome given that private spending essentially dictates the outcome.
The government is far better off targetting employment levels to ensure there are enough jobs available and to also work to ensure first-class public infrastructure is in place.
Whatever the fiscal outcome that emerges from that sort of quest will be appropriate, given the goal of government is to advance welfare rather than achieve some abstract financial ratio, which few people fully understand anyway.
But any of this will probably fall on deaf ears again.
Via this link.
I think he asks a very relevant and painful (for the Eurocrats) question: would the cost of abandoning the euro have been as great as the drama we see right now in Europe, with unemployment, underemployment, crumbling (i.e. actively demolished) welfare states and crumbling infrastructure, on top of which there is the rise of all kinds of unsavoury right-wing parties.
A big part of the article is also a summary of The Germany Illusion – by Marcel Fratzscher, which is as current and relevant as a book can ever be. By now, even Finland and the Netherlands have started pledging Germany to invest more (although they are still austerians otherwise).