Wednesday, June 19, 2013

Fixing the eurozone

There actually are solutions to the eurozone's problems. Dani Rodrik gives his take on Europe's Way Out Project Syndicate 06/12/2013. Realistic sovereign debt reduction, i.e., writing off unpayable debt, is an essential feature:

Debt reduction by itself clears the way for growth, but does not directly trigger it. Policies that directly target expenditure rebalancing within the eurozone and expenditure switching within the peripheral economies are also needed. These include: policies to boost eurozone-wide demand and stimulate greater spending in creditor countries, especially Germany; policies that aim to reduce non-tradable prices; income policies to reduce the peripheral economies' private-sector wages in a coordinated fashion; and a higher ECB inflation target to allow room for movement in the real exchange rate via nominal changes.

These policies would require Germany to accept higher inflation and explicit bank losses, which assumes that Germans can embrace a different narrative about the nature of the crisis. And that means that German leaders must portray the crisis not as a morality play pitting lazy, profligate southerners against hard-working, frugal northerners, but as a crisis of interdependence in an economic (and nascent political) union. Germans must play as big a role in resolving the crisis as they did in instigating it. [my emphasis]
But that kind of leadership by Germany is not going to happen with Angela Merkel as Chancellor. But it's also not going to happen with her SPD opponent Peer Steinbrück as Chancellor, either, because he's completely bought the neoliberal line on austerity policies. His differences with Merkel on eurozone policies are inconsequential, and even those differences aren't credible. He's angling to become Vice Chancellor in a new Grand Coalition with Merkel at its head.

And time is running out on solving this problem.

Rodrik also notes that, despite the Troika's recently making noises about austerity being inadequate, they are still pushing it, in Europe and elsewhere. Or rather, they suggest a new emphasis on "structural reform: easing of firing restrictions and other labor-markets regulations, liberalization of closed professions, and removal of controls on markets for goods and services."

But as he notes, this is just more of the same austericide. Paul Krugman explains what these Structural Excuses (06/18/2013) are about:

In many cases “structural reform” is code for eliminating worker protections and/or sharply cutting social benefits. ...

That brings me to a second problem: whenever some catchphrase becomes part of what Very Serious People say because it sounds Serious, it’s time to stop using the phrase, to force the VSPs to talk about what they really mean. ...

ut the main thing about “structural reform” in Europe is the role it plays in discussion of macroeconomic policies. Instead of reflecting on the fact that Europe is sinking deeper into depression five years into the slump, and clearly needs less austerity and more aggressive monetary expansion, the usual suspects start talking about the need for structural reform. And my sense is that this talk of reform has, in practice, become less a real demand for specific actions than an excuse for not facing up to the reality of macroeconomic disaster, and a way to avoid discussing the responsibility of Germany and the ECB, in particular, to help end this disaster.
The eurozone is planning to recapitalize its banks this year. But the process is shaping up to be another Angie special.

Wolfgang Münchau warns in 60 Milliarden sind Peanuts Spiegel Online 19.06.2013 that the eurozone finance ministers are currently debating on recapitalization amounts within the 50-70 billion euro range, when the actual amount needed is closer to €1 trillion. What is shaping up is a protracted period of zombie banks "die nicht gerettet werden aber auch nicht sterben dürfen" ("that are not saved but not allowed to die.")

Heckuva job, Angie, heckuva job!

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