Sunday, December 14, 2014

2014: Euro crisis and stopped clocks

The year 2014 is coming to an end. News magazines and websites come out with recaps of major events of the year about this time. I always intend to read through one or two of them. But I normally don't make it.

But I'll try to put a few items up as reflections on events of 2014.

One of the big stories this past year, and for several years before that, has been the eurozone crisis. Budnesbank head Jens Weidmann has been consistent on his solution for it. Austerity. More austerity! And more austerity! He's more of a fan of Herbert Hoover/Heinrich Brüning economics than Angela Merkel herself is.

But in September, he did manage to be right about the eurozone crisis not being over, in a stopped-clock-is-right-twice-a-day kind of way. His solutions, of course, was ... more austerity!

Armin Mahler and Anne Seith, German Central Bank Head Weidmann: 'The Euro Crisis Is Not Yet Behind Us' Spiegel International 09/24/2014:

SPIEGEL: Yet Spain, once wracked by the euro-zone crisis, can today borrow money more cheaply than ever before in the history of the monetary union. Do you not think that is a consequence of Mario Draghi's 2012 pledge to save the euro "whatever it takes"?

Weidmann: You shouldn't mistake the thermometer for the illness. I have never disputed that the ECB could impress and move the markets with the announcement that it would make massive purchases of sovereign bonds if necessary. But such measures focus on the symptoms and don't cure the causes of the crisis. As such, the current calm is misleading and even dangerous, because it takes pressure off of the governments to implement badly needed reforms. If they are not undertaken, investors could quickly change their risk evaluations.
In austerity-speak, "badly needed reforms" means cuts wages, slash benefits, cut pensions and public services.

Milton Ezrati had a more accurate view of the road to a soltuion in France and Friends Are Letting Germany Conquer Europe The National Interest 08/24/2014. The article is behind subscription. But quotes the following from Ezrati:

German dominance, even hegemony, will expand if France and the nations of Europe's beleaguered periphery fail to enact fundamental economic reform. Without it, they will remain economically weak, financially fragile, dependent on Germany and subject to its lead. With effective reform, however, France and the periphery have a chance to regain economic vitality and shed the need for German support. These are the options. Ironically, all the initiative lies with the weaker countries. Germany is bound to the union. It will have to play the hand France and Europe's periphery deal it. They will determine whether Berlin gains dominance or whether Europe can restore its former balance.

Commentator Robert Misik writes opitimistically about the slowly building democratic opposition to the Hoover/Brüning pockies, "Merkels antidemokratisches Eliten-Europa ist am Ende" ("Merkel's anti-democratic elite-Europe is at an end"). (EU-Europa kommt auf den richtigen Kurs - aber nur sehr, sehr langsam Der Standard Der Standard 01.06.2014)

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