John Weeks has a good piece on the conflict between Italy and the European Commission. Apart from showing how ridiculous and ideological the EU-rules of the Stability and Growth Pact are, it also shows how it is impossible to apply them.
I am currently reading his new book, I highly recommend it. It covers much of the same ground as Yanis Varoufakis’ Modern Political Economics: Making Sense of the Post-2008 World, but in a more accessible and less technical/philosophical manner. On top of that it is written a bit in a ‘cranky old man’ -style which I think is highly suitable for the subject (and pretty entertaining as well). Anybody should be cranky about how mainstream economists have fed us and our governments pure rubbish. It would be so great if economists of this type, like Weeks, Varoufakis, Marc Blyth and Steve Keen team up with economic sociologists like Michel Callon, Edna Bonacich or Jens Beckert. Then we finally might get some kind of economics that makes sense.
Posted in Economy, EU, Eurocrisis
Tagged economic sociology, Edna Bonacich, European Commission, Italy, Jens Beckert, John Weeks, Marc Blyth, Michel Callon, Stability and Growth Pact, Steve Keen, structural deficit, Yanis Varoufakis
In some way, Finland used to be a lot like Italy – using devaluations to boost export competitiveness. But of course Finland is seen as one of the core countries, even though its economy is in tatters. Finland is also much smaller and has a much less diverse economy than Italy. Nonetheless, it is interesting to think more about Finland in the context of differences between Finland and Italy in e.g. labour market participation, education, innovation capacity and labor market relations.
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.
Some commentators (notably Ambrose Evans-Pritchard) have warned for a long time Italy is the elephant in the room, and not only because its companies are competing directly with Chinese companies (and quite likely losing out).
Edward Hugh – On The Trail Of Italian Debt
I had to read this post a couple of times but it seems that Europe in particular is in a very difficult position.
“Italy is the Weak Link in Europe” http://www.creditwritedowns.com/2013/08/italy-is-the-weak-link-in-europe.html
And also one of the reasons Bank of Finland president Erkki Liikanen is wrong to assume that the world economy faces bigger pressures than the case of Europe…August probably is just the quiet before the storm.