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AT THE WEEKEND, I attended an event co-organised by the ‘Ballyhea Says No To Bondholder Bailout!’ campaign and Debt and Development Coalition Ireland. The former concerned with the banks’ losses now foisted on Irish people as government debt, and the latter ‘celebrating’ (if that’s the right word) 20 years of action against similar debt injustice perpetrated on developing countries.
Besides the unfair imposition of ‘odious’ debt in both situations, another grievance in common is the intervention of the IMF with their neoliberal inspired ‘austerity’ conditions, inflicting huge suffering on ordinary citizens. (Never on the elites, of course.) Thus, Debt and Development Coalition are expressing concern now as well at the plight of a number of European countries. And to their surprise, EU and ECB authorities are handing out even more severe prescriptions than the IMF in the guise of ‘help’.
Whilst I have to express huge admiration for the sheer tenacity of over two years of campaigning, including alternate weekly protest marches in Ballyhea and Charleville, Co Cork, I came away feeling that we’re a very long way from either understanding or tackling the underlying economic crises in the eurozone. As in any currency union, such crises ultimately spread to all parts if left to fester long enough.
The fobbing off by European and ECB officials reported by the Ballyhea group (‘sympathy’ but no action) is merely a symptom of a much wider dysfunctional system.
Nicely on cue as I write this, the European Central Bank, the ECB, has just announced another ‘base’ interest rate cut, and also, significantly, stated that these near zero rates will continue for an indefinite period.
Let’s get one thing understood right now. These are not the actions of a central bank seeing the ‘recovery’ peddled by the propaganda machine, but rather, firmly, the opposite outlook – stagnation, at best, or even contraction – and for an extended period, as their ‘forward guidance’ also reveals. Actions speak louder than words.
The eurozone economy as a whole is still in dire trouble after five years and getting worse, not better. Heaping ‘austerity’ onto crippling private and public debt burdens is a failed policy. Even the IMF’s own research department recognised this fact earlier this year in a study on the effects of austerity on ‘fiscal multipliers’.
However, never historically an organisation to pass up the opportunity to impoverish the masses, an increasingly schizophrenic IMF, ultimately led by politics, not economics research, continues to recommend (or demand) even more and faster austerity. Except now with the some added ‘PR’, otherwise empty, Orwellian guff about making budget cuts ‘growth friendly’.
I would have hoped by now that the idea of growing anything by reducing its size could not be seriously expressed publicly, but neo-liberal economic brainwashing for 30 years has had an appalling effect on people who should know better – media, mainstream ‘economists’, politicians and all.
And if anyone thinks Ireland’s unemployment is coming down, signalling some improvement here, add back in the JobBridge, Tús and others on temporary ‘schemes’, not counted as on the ‘register’, and you will soon see that the truth may even be opposite, but certainly no significant reduction.
It’s a continuing mess. Further debt crises, the result of failed policies, with panicked, ill-considered ‘fixes’ can be expected. Greece looks to be first in the queue (again), but other, larger countries are on the way.
So, did I hear anything much in Charleville to give me much hope? Sadly, whilst noting the tremendous grit and spirit of the Ballyhea group and other debt activists, no.
The elephant in the room remains as big as ever whilst we chase the mice. The eurozone system itself is deeply flawed and cripples, by design, the ability of member governments to make macroeconomic policy in the interests of their majority ordinary citizens. To restore activity in the production of the goods and services we need in the ‘real’ economy. Which in turn makes debt more manageable.
The crippling of macro economic policy options is not even recognised by most mainstream economists, never mind media commentators or the wider public. Yet, it is this aspect, and not the public debt burden, that is the real cause of the currency zone’s deeper and continuing recession/stagnation and mass unemployment. This period of debilitating financial crash aftermath, in the eurozone, is now lasting longer than that during the 1930s following the 1929 collapse.
Many other countries in the world – developed, ‘western’ countries – have equally high public debt to GDP ratios, yet they have no public debt ‘crises’ nor do they perceive the need for the level of crippling austerity and deficit/debt reduction programmes in the teeth of a recession, that we see in the eurozone. Japan sees no difficulty in its recent decision to take its debt/GDP ratio to near twice that of Ireland, with a new fiscal stimulus programme. Why the problem for eurozone countries? To mangle an old quote, “…it’s the Euro system, stupid!..”
There are a few very serious and prominent financial figures, who have recently come out publicly, and clearly stated that it is the Euro shared currency system at fault. Not just preventing our ability to recover, but at the root of inevitable further looming crises that threaten to even break up the currency union itself.
They aren’t simply ‘Cassandras’; they are offering well considered solutions – solutions that are derived from careers at the highest levels of institutions like central banks and internationally prestigious academic tenure. Solutions that have very thorough history and present day advocacy in non-mainstream, ‘heterodox’, schools of economics – schools like MMT (Modern Monetary Theory) that can credit themselves with some remarkably accurate predictions of the EMU’s present difficulties, before it was even introduced.
Broadly termed ‘unconventional monetary policy’, these solutions which can quickly restore growth, prosperity and employment recognise the true nature of the modern ‘fiat’ currency we use, how it functions, and the full implications for monetary and fiscal (macro) policy options that are inherently available.
One such person advocating use of ‘unconventional’ monetary policy is Lord Adair Turner, career economist and banker, former head of the UK FSA (Financial Services Authority). He has stated publicly, and correctly, that the UK issues its own fiat currency and never can have any difficulty providing ‘borrowed’ finance at its target interest rate, or indeed simply ‘issuing’ the finance, debt free, as required.
Therefore, there is no ‘financing’ issue for the UK in pursuing a policy of fiscal stimulus (tax cuts and/or more spending), if it so chooses. The same is true for the US (and any others with fiat, free-floating currencies) and is clearly the principle behind Japan’s recent stimulus policy choice.
Another such person, referring to the eurozone this time, is Italian career central banker and Professor of Finance, Biagio Bossone. Bossone has published public articles summarising his work considering the flaws holding back growth in (and even existentially threatening) the eurozone and how ‘unconventional’ monetary policy offers a very powerful solution.
Specifically, he recommends using the ability of Euro currency central banks to issue debt-free finance to enable agreed, eurozone/EU wide negotiated, fiscal stimulus measures. Measures that can quickly bring all the inextricably interlinked unemployment, growth and debt crises finally under control.
It is essentially as simple as Keynes wrote in the 1930s, “….fix the unemployment, and the rest will look after itself…”. To do that, just as Keynes successfully advocated, fiscal stimulus measures are required.
Mike Hall originally qualified as an Electronics Engineer, and was later employed in the worker co-operative sector after some MBA studies. He has spent the last few years studying the history and current work of ‘heterodox’ economics schools (Post Keynesians, MMT) ,which credibly predicted much of the financial mess and ensuing deep recession that has exposed deep flaws in the eurozone system.
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Germany benefits most from the euro.
Put simply the Brittish can print more sterling ,the Americans can print more dollars and the Europians under the dominance of the Germans wont print more euros as they dont trust the rest of the Europian progect.
A comment on the Guardian newspaper recently summed it up. –
“[Ireland] needs to exit the euro but, especially for a small population, there is a large public sector that has a vested interest in maintaining high salaries denoted in what is primarily a German currency.”
The last thing our politicians or senior civil servants want to see is their pensions being paid in a devalued Irish pound. If we do leave the euro, it won’t be because they’ve had anything to do with it.
Like for like the public service and the private sector are on much the same wages.
The Private sector needs to look especially at Legal Fee’s in Ireland, accountancy fee’s and other professional services which are brutal and a real problem for the self employed.
Private sector and public sector are on the same wages ?????? What planet have you been living on for the last 10 years
Like for like roles they are.
I’ve not read that guardian article… Would love to. Any idea when it was published?
Private sector wages are generally much higher.
I like Europe but not so much the eu. I dislike the euro.
The european economic area was a good idea,free trade and movement of goods,the E.U and the single currency are a disaster the E.U will collapse in less than two decades then the fun begins….
MMT is My Money Tree theory. You take Money from the Tree and solve unemployment.
I’m proud I voted NO to joining the then EEC. I believed the Labour and Sinn Fein parties who claimed that it would ultimately result in an economic and political union which ALL the other parties said would never happen! It Britain leaves the EU, which may happen soon, I hope Ireland follows. Can it be much worse then it is now? There are no jobs, the youth are emigrating and we are all told we owe thousands each. We might end off poorer but at least whatever we have or create will be our own. The EU project has failed in my opinion.
What ruined the EEC was the desire to turn it into a political unitary state – a desire that is still there.
When it was nation states working together and building a better Europe together it worked. When it tried force every economy to conform to the needs of Northern Europe it failed.
German economic data sets the EU response, not wider Euro data. When the responses needed are so different it cannot but ruin one half over the other.
You don’t have to be a rocket scientist to realise that trying to amalgate dozens of countries with totally different economies , natural resources and cultural differences is a nearly impossible endeavour.
It works in the USA and Germany.
The American colonies started being founded in 1607 and drew together with a common heritage, laws, language and culture and currency (bar civil war) for the last 400 years.
The German people existed 2000 years ago. Their shared concepts of law etc go back as least as far.
Germany and American have nothing in common with the Eurozone. Absolutely nothing.
There is so much wrong with Ireland at the moment that I honestly believe that nobody has any idea how to fix our broken economy and political system.
What’s clear is Micheal Noonan doesn’t or Enda Kenny if there is any chance one of others do they are silenced by party whip. Never has a government done so badly, traitors one and all
EU. Europe just not working. Failed us all. Pull out and take your chances. Can not be any worse for people than it is now. Banking, HSE. Jobs. I could go on and on.
The cost of saving the EU banking system for each Irish citizen is almost €9,000. The EU average for each citizen is €192. So we really are just the whipping boys. Time for our politicians to grow balls and start putting its citizens first. Leave the euro. We need our own currency back.
Nonsense , if wealth creation is just money printing then Zimbabwe would be the richest country in the world. Keynes is just dragged out for anyone who wants to get paid digging holes and filling them again. Debt needs to be liquidated and assets prices need to fall and gov spending and taxes need to fall, then we might see a recovery (a real one)
That is your ideological point of view.
Austerity, high cumulative tax burden, massive public expenditure focused on funding over generous public service pensions and salaries for the upper echelons and zero credit for business is not the ideal recipe for economic recovery.
No shit, sherlock. Tell me something I don’t know !!!!!!
Matt
Germany does indeed benefit most from the Euro, but I would suggest that above all it is the top few percent of all member countries benefiting most. To even further advantage its position as net exporter, it has also suppressed the wages of its own workers. We are all being urged to emulate them and ‘compete’ in what can only be a race to the bottom for ordinary citizens.
By definition, by simple arithmetic, we cannot +all+ be net exporters to each other. Some must also be net importers. But in the long term this is not sustainable in the currency union as constructed. ‘Winners’ will ultimately simply destroy ‘losers’. This is the neoliberal road Euro authorities are still insisting we follow.
If people would like to see a very accessible and straightforward analysis, using the Accounting (arithmetic) Identity technique of ‘Sector Balances’ – money stocks and flows must all be accounted for – then Prof Stephanie Kelton’s recent presentation concerning fiscal stability is a must watch video. Briefly explaining the flawed mainstream approach she goes on to explain the US Sector Balances and then those at greater length in the Euro zone. (About 50mins altogether.) Links are here:- (You will understand how the Euro system as it stands can never work.)
http://neweconomicperspectives.org/2013/11/randy-wray-stephanie-kelton-present-fields-institute.html
Her presentation slides are also available for download.
Prof Randall Wray’s presentation on the nature of modern ‘fiat’ money & how it functions in society is also highly recommended.
Just to be clear, what I’m suggesting we need to consider is using the kind of ‘unconventional’ monetary policy firstly to stave off the kind of disaster meted out to Greece from spreading throughout the currency union.
A 3 to 5 year program using debt free finance to stimulate & restore employment and pay down some of the public can stabilise our economies giving us time to negotiate a proper working structure for a shared currency. Or, if member countries cannot agree on that, a massively less harmful and orderly dissolution of the Euro currency can occur from positions of economic health & low unemployment.
The finance can be provided in a measured and incremental way, and sums issued balanced among countries in a fair, per head of population basis.
My choice of stimulus program would be an MMT style (voluntary, minimum wage, non-competing, charity/community sector) Job Guarantee, combined with additional public debt relief pay down. The latter used also to the per head balancing mechanism.
Mike do you not think the main reason to our economic problems has been corruption ,what if cowen and co were straight and the banks had to be sold as a going concern or if the other toxic government which followed them in had been straight and did not carry the same policy to save the banks and let the people pay for it .no matter what the cost
FF corruption and cronyism has been weighing this country down for decades but the Euro and its failings are also part of a wider continental malaise. A malaise that the continent will do well to survive.
Bill
There’s not doubt whatever that the banks were bailed out to protect bond holder banks in other EU countries, and the bill handed to Irish citizens not in any way responsible. Morally indefensible, and yes both governments culpable colluding with this.
But it happened. Original bondholders got their money back. Any possibility of direct redress has gone.
Probably 95% of what the financial sector now does – all the gambling – should be banned.
But what I’m concerned with here is the ongoing damage to the real economy of ordinary citizens in a Euro zone that can never work properly as presently constructed.
We may not have even another two years before the next serious ‘crisis’ surfaces, threatening disorderly break up (I put Italy first to break), never mind the decade plus that authorities talk about before unemployment reduces much with their bankrupt policies.
The hardship and suffering that will further result from this is entirely unnecessary and unacceptable.
There are ‘economics’ solutions readily available, of the kind I’m writing about, very credibly backed by academics and finance practitioners at the highest levels of expertise.
It is only politics, ignorance and vested interests stopping their adoption.
This is also morally indefensible to me.
Mike, spot on.
MMT represents a profound misunderstanding of currency. What it is and how it works.
Paul Krugman has dimissed MMT: “Most of our current deficit is cyclical, and even in the long run a modest return of political rationality would make the budget issue eminently solvable. But the MMT people are just wrong in believing that the only question you need to ask about the budget deficit is whether it supplies the right amount of aggregate demand; financeability matters too, even with fiat money.”
Eugene Fama also awarded a Nobel prize for economics (this year) and explains here in simple terms why MMT cannot work:
There is an identity in macroeconomics. It says that in any given year private investment must equal the sum of private savings, corporate savings (retained earnings), and government savings (the government surplus, which is more likely negative, that is, a deficit),
PI = PS + CS + GS
…
Even when there are lots of idle workers, government bailouts and stimulus plans are not likely to add to employment. The reason is that bailouts and stimulus plans must be financed. The additional government debt means that existing current resources just move from one use to another, from private investment to government investment or from investment to consumption, with no effect on total current resources in the system or on total employment.
Kyle Bass genuinuely forecast the current crisis. Put his money where is mouth is and his hedge fund company made $ billions when Lehmens went to the wall:
The fallacy of the belief that countries that print their own currency are immune to sovereign crisis will be disproven in the coming months and years. Those that treat this belief as axiomatic will most likely be the biggest losers. A handful of investors and asset managers have recently discussed an emerging school of thought, which postulates that countries, as the sole manufacturer of their currency, can never become insolvent, and in this sense, governments are not dependent on credit markets to remain fiscally operational. It is precisely this line of thinking which will ultimately lead the sheep to slaughter.
Sean you quote Paul Krugman by way of putting forward some argument refuting MMT, as follows:-
“….Paul Krugman has dimissed MMT: “Most of our current deficit is cyclical, and even in the long run a modest return of political rationality would make the budget issue eminently solvable. But the MMT people are just wrong in believing that the only question you need to ask about the budget deficit is whether it supplies the right amount of aggregate demand; financeability matters too, even with fiat money.”…”
But there is no ‘argument’ against it in there at all.
Yes,
“…the budget deficit (or surplus) [is determined by] whether it supplies the right amount of aggregate demand…”
describes MMT’s advocated application of Abba Lerner’s ‘Functional Finance’ fiscal approach. (Also a choice of many others besides MMT, such as positivemoney.org )
Krugman goes on
“…..financeability matters too, even with fiat money…”
But this is an opinion, not an argument, and no other is supplied in this or any of your quotes.
Fama is a literally a laughing stock having just been co-awarded a fake ‘Nobel’ in economics (actually handed out by a Swedish bank….yeah, dead reliable, banks ;) ).
The joke is that he was singing the praises of wonderfully beneficent ‘efficient financial markets’ mere weeks before the global financial crash. I think Fama also featured as an unaware comedian in the film ‘Inside Job’. (Well worth a watch :) )
I think you should try and construct an argument yourself. You know, in your own words, as I do. Maybe actually start with statement from MMT, or Mr Bossone, or Lord Turner or someone else who uses the correct description of the fiat monetary systems we have with €, $, £ etc. ?
Then make the argument +you+ think refutes it. Just as I’ve never seen you write anything expressing concern for mass unemployment’s effects, never mind solutions, at the Journal, I suspect we’ll not see much but a few more cut and paste ‘opinions’ or soundbites from International clowns.
I’ll trade you one for the three you’ve given…beyond that, I can’t be bothered.
“Academically, MMT has never been challenged. From what I see, they are right.”
Bernard Lietaer, former career central banker, now Professor of International Finance, expert and author on currency systems. Quote on youtube.
I remember years back when I was in Transition year and our ‘European Studies’ teacher was a huge advocate of the EU, particularly the plan for a unified currency.
I asked her one day; “So Miss, if a ECB is the sole creator of money in the EU, do we all have to use it”?
“Yes, of course”.
“And Miss, will this money have interest attached”?
She said “Yes, all money has interest attached, thats economics which is very complex”.
I said “I dont understand miss. If you are the sole creator amd lender of money, which has interest attached – then this system will ruin countries that agree to it because as soon as you borrow, you owe more than actually exists. You have to borrow more just to pay the interest on the first money you borrowed.”
She couldnt answer it and all she said was that this will never happen and to stop talking nonsense…….
My nephew has her as a teacher now.
God help him.
Ah, the education system. Why do we not get taught the simple basics of all this in school?
How can we properly exercise our democratic rights if we’re not adequately informed how the system works?
Get your nephew to get his teacher to show that Stephanie Kelton presentation I’ve linked in a comment above :)
Oh, and do watch Randall Wray’s, your explanation of interest isn’t quite as simple as you’ve said, but I don’t want to go into it here.
Ireland will never recover until welfare tourism is stamped out.
Mark
There is no ‘welfare tourism’. Nobody can come here and get any benefits for a minimum of six months, unless they apply as non-EU member refugees.
These rules also apply to returning Irish citizens. The ‘habitual residency’ rule (I believe its called) is +very+ strictly applied.
All citizens from other EU states that may be signing on now are doing so because they came and have worked continuously for a long period before being made +involuntarily+ redundant.
Under EU law, they then (but only then) have a right to stay and receive the same unemployment benefits as everyone else.
The original principle was that ‘labour’ should have, in practical terms, similar freedom of movement to ‘capital’, it all being the quid pro quo & citizens’ protections in the ‘free trade’ zone (EU).
Personally, I think ‘labour’ are being screwed royally by ‘capital’ still, as the last few years demonstrate.
LOOK AT ICELAND. THEYRE IN SO MUCH BETTER SHAPE. AND GRANTED THERE ARE ONLY A FEW HUNDRED THOUSAND ICELANDERS. THEY HAD THE PERVERBALLY,BALLS, WE DO NOT. JUST TALK TALK TALK. THAT SEEMS TO BE ALL US IRISH PEOPLE ARE GOOD FOR.
Stop shouting
Iceland’s and Irish economies are not as comparable as some are led to believe.
Ah, the perverbally balls, that explains it.
The euro was a failed attempt to drive economic integration by means of a monetary policy. I was suckered into believing that it would work.
We might have survived the euro if we had followed similar economic and fiscal policies to Germany. This would have involved very tight credit control, restriction of wages and salaries and building up a surplus of exports way above imports with limited consumer demand.
Instead, the Central Bank legislation was amended to remove credit control as a statutory obligation of the Central Bank of Ireland. The 1937 Constitution and the Act establishing the Central Bank in 1941 mandated credit control as vital in the public interest. In 1994 and reaffirmed later, credit control was rescinded as a statutory objective and aim of the Central Bank of Ireland.
The Irish economy became a credit based economy with massive asset bubbles the consequences.
Peter
Net exports from the Eurozone are quite small. But even if they were large and all Eurozone countries, in a feat of Herculean exporting frenzy, managed to all be net exporters – in current account surplus – this relationship with the rest of the world would ultimately have to collapse. (Yes, it can last a long time – but not forever.)
Of course, this isn’t the case, so having any country within the Euro as a net exporter, means another is going to be a net importer – the Sectors, by accounting identity must balance. ‘Stocks’ in a unit of common currency cannot keep accumulating, positively and negatively for ever.
Do see Stephanie Kelton’s presentation I’ve linked in a comment above & you’ll see what the problem is.
No Peter, the euro project is going fine. This project was to plunge countries into debt and thats exactly whats happening.
Google the quotes from the EC/ EU founders.
Mike, I agree with your excellent analysis. Not all countries can beggar their neighbours by building up a huge trade surplus. Your paragraph one is correct and valid, in my respectful opinion.
Paragraph two necessarily follows as a corollary of the first paragraph.
My only point, limited and somewhat lame as it is, is that if Ireland had become a miniature Germany, Ireland would have done better but I agree that overall on a macro level it would be impossible for all countries to replace Germany’s approach. So, I fully agree with you.
Mike, I have accessed the presentation by Stephanie Kelton Toronto and downloaded the slides. I’ll review this material. Thanks very much indeed.
the introduction of the single currency meant that the smaller nations fell right into the hands of the larger ones, germany has tried o gain control of europe for nearly 100 years, what it couldnt achieve with tanks it has now achieved with banks!
Such ignorant rubbish. The Germans want nothing to do with this, but have been forced into this role against their will. How come Ireland was doing so well after the euro came in? If everyone hadnt gone mad and destroyed the country during the hideous era of the Celtic tiger we might not be in the mess we are in now, we might have been in a better condition to cope with the knock-on effects of the global financial crisis; if we hadnt allowed a property bubble, we would not be in the dire straits we are in now. So easy to blame Germany for everything instead of looking at our own mistakes and complete head in the sand, lets just have the craic and charge everything to the credit card attitude, remember the SSIA? The free money given to you by the Irish nanny state? (never heard of such a ridiculous scheme in my life!! The idea was to teach people to save, ha ha!!!) We are to blame for a lot of our current problems, we bailed out the banks, we allowed our banks to run out of control, completely unsupervised, and we most certainly cannot blame the Germans for years of Bertie Ahern and FF politics/economic policies.
finebetty, germany has everything to do with this , it was german banks that speculated and lent vast sums to irish banks, it was the german chancelor anglia merkal that insisted that the bundersbank passed the irish budget before the irish people were allowed to hear it . it was german banks and speculators that would not allow a writedown on souverin debt , also not every one in ireland took out massive loans and speculated on the property and shears markets during the ‘celtic tiger years’ it was a select few who ran up enourmous debt that they could never repay, and most of them had involvement with our 2 biggest political parties, the irish people did not get a say over the isssue of bailing out the banks or paying the bondholders, thier were regulators that were supposed to oversee the banks, how were the ordinary citizen to know that these people were corrupt? these were political decisions and our politicians allowed themselves to be bullied by the likes of germany instead of standing up to them.
finebetty
It was Euro membership and ineffective (Euro wide) regulation that enabled Irish banks to obtain reckless amounts of finance to create the bubble. And note by far the biggest bubble & only one to cause banks’ actual losses thus far was +commercial+ lending, not so much household lending.
Germany, or rather its elites, had much to do with creating an unsustainable system which was clearly going to benefit them disproportionately thru’ low/fixed exchange rates over time. But they didn’t expect the sheer level of financial securities fraud coming from Wall Street that would blow up the finance sector and cause such massive knock on effects to the real economy. The sheer size of this economic shock has just served to amplify and bring to a head much sooner, the accumulation of unsustainable imbalances that would anyway have reached crisis point sometime.
General point.
The ‘macro’ economy is +circular+ in character, not linear like ‘household’ budgeting. There are always effects which come right back round.
‘Transfers’ in a currency union are not inevitable, but are needed as a backstop to prevent imbalances building.
For example, Germany does not need to ‘subsidise’ other countries. It can just as easily +spend+ more, buy more goods for its own consumption and thus give us the money and work to provide them. This works just as well as ‘free’ transfers, economically.
But German elites chose not just not to do this, but actually did the opposite in forcing down their own workers’ wages (Hartz ‘reforms’ etc.), such that ordinary Germans were not +able+ to buy stuff from the rest of us. This is still German domestic policy.
Either knowingly or thru’ ignorance, German elites’ behaviour is not conducive to a sustainable currency union, and has shown no sign whatever of realising their error in demanding we all follow an unworkable model as well (!).
But it must be said that the forcing down of wages anywhere is always a ploy in the vested interests of elites (capital owners) everywhere.
Its macro economics effects in a currency union can be devastating for ‘loser’ countries, like Greece (but others are following), but elites thus far seem to care not – at least until the social breakdown gets nearer to home. (Inevitable eventually)
Hope comes to Europe as France and Holland’s most popular parties come together to demand a return to a Europe of the people and for the people.
Agree with a lot of what you say. The Euro was a very good idea, but probably about 50 years too early to introduce it, and certainly needs fiscal transfers and more harmonisation across the zone (you can’t have welfare rates in one member state outstripping average salaries in another for example). Basically for it to work, we must become a single economic, and in some ways political, union.
However, I don’t agree the answer can be found in Keynes this time out. His ideas worked in the 30s but the world is a vastly different place these days. One of the major factors in our current high unemployment rates that is being widely ignored is the fact that a huge number of jobs that previously existed have now been automated and can be performed by machines, or at the very least by many fewer people. Therefore looking to the private sector to cure our unemployment problems will likely not succeed, and this is a factor that will only become more evident over time. This is not a bad thing either – economic strength is not measured by numbers employed, but by goods and services produced, and despite decreasing labour requirements outputs have been increasing at almost exponential levels in the past few decades.
We do not need to return to tired Keynesian solutions to our current problems. Keynes was a great man, but he was from a different time. We need to adapt to our current conditions, and realise that much of what we currently view as problems are in fact great opportunities.
Agreed that it was implemented too soon.
I can’t see the Germans agreeing to fiscal transfers even though there is no working currency in the world that does not have them. It is just another key plank of a stable currency that the Euro does not have.
@ Silent majority
You need to think more in circular terms in macro economics. Spending is Income is Spending and so on.
The current problem is lack of aggregate demand from the unemployment caused by the economic shock of the financial crash (with high debt). We have not ‘automated’ out of existence near 10% of the European workforce in just the last five years. The kind of structural changes you mention occur over much longer time frames.
The present situation is very much the same as the 1930s, including the similarities with Gold Standard and shared currency that inhibit counter cyclical action by governments.
The decades of the entire post war period, including in Germany itself, are a testament to Keynes’ success. From 1945, owing vast sums in $US, UK gov instigated free education, their national health service (free), welfare for unemployed, massive social housing programs etc.
The problem doing any of this is never ‘finance’, but the ability to hire and buy the ‘real resource’ capacity to carry it out. Well, and ideology/politics/vested interests of the 1%. (It is money’s relationship to what is available to buy that determines inflation, or not. Nothing else.)
The principles are just as applicable now.
fiscal transfers, its funny cos thats how the German federal system works – and it works well but is the cause of some (/much) bitterness – the Bavarians subsidising Berlin etc., I think that might be why many (Germans) are reluctant/afraid to introduce this at EU level because basically it would mean Germany subsidising half of Europe with some contributions from the Scandinavians, Britain would of course probably manage to get out of it. It is the issue tho – if we want the euro, we do have to have more political union and solidarity and no one is too sure if they want that. Introducing piecemeal regulations without naming a spade a spade is just cowardly. We need to take the bull by the horns and ask people what they want. More, or less.
This is a thoughtful and considered article. It is thought provoking. It is no harm at all to challenge orthodoxy although it is an unpopular activity in Ireland.
Half of the Euro zone needs Peanuts and Half of the Eurozone is allergic to them and the ECB are trying to pretend that both are the same.
The Euro crisis explained in food allergy terms.
Irish people have developed from our neighbours the fantastic ability to blame the EU for all of our problems.
Then where does the Dutch and French problems with the EU and how its run come from.
and many have developed a cultish attachment in defense of the Euro.
How do you explain away the growing hostility to the EU establishment in France and Holland and Italy.
The establishment at the top of the EU are disconnected from the ordinary person and too corporate in outlook. The democratic deficit in the EU is very real.
If the French and Dutch are as anti-EU as you claim them to be why have Le Pen and Wilders not stormed to power then?
“The establishment at the top of the EU are disconnected from the ordinary person and too corporate in outlook. The democratic deficit in the EU is very real”
So true. There is growing hostility in Germany to the EU too, and many people demanding the return of the DMark. What worries me the most is the idea that many are too afraid of what other people might think (i.e. the US, and a not so close second, the rest of the world), if we all decided to get rid of the EU and/or the Euro – its an experiment, what we do with it is our decision, where we go with it is our decision, so it might cause some politicians some embarrassment, but so what? Allowing it to continue in the bloated, bureaucratic, undemocratic state that its in now is more embarrassing. We can make of it whatever we want, we created it. I really wish they would hold EU-wide referenda on whether we Europeans actually want to keep the EU/Euro or not, and if so in what form – it would be really interesting to get a true reflection of what the average citizens from Finland to Poland to Spain actually want – if pro-EU then we can build on that, and start again with public support, if against, then we all go back to the drawing board. Most people liked the idea of the EU to stop us all from killing each other (very simplistic, sure, but the simple idea for the average citizen was that trade and mutual benefits would prevent WW3 from happening on European soil at least, and actually help support poorer areas – at least help them to catch up with the rest with regard to infrastructure etc.) The politicians have far too much power within the EU and are operating on a level that is far-removed from what people actually want – the only issue we ever hear about is leaving or staying in the EU – nothing about staying in the EU and changing it radically. I find it such a shame that Britain has never taken on the role it could have within the EU.
The Euro is great this is British propaganda.
You have to blame someone sweetheart. Can’t blame youself.
The ECB is well run from a Euro standpoint as it maintains the health of the currency internationally. Europe should not run the risk of being beholden to creditor countries in the way that the USA will be to China in the next decade. The minor issue of how our little sideshow in Ireland plays out is of NO economic or academic interest to the ECB and they don’t give one fraction of a hoot about us bearing the brunt of looking after bondholders. We are just too pro-European and innocent to see that and act accordingly like the Icelanders have done.
Much of Europe though still has balls, unlike the modern Irish.
Expect Geert Wilders and Marine LaPep and Grillo to challenge the EU is always right consensus.
Podge
I’ll just correct one aspect of your comment…
The US is not ‘beholden’ to ‘creditor China’. The relationship is really opposite to your characterisation.
The US got lots of real goods from China, at very low prices in return for a bunch of fiat US dollars.
Ultimately, to be of any use to China, beyond a barely decorative string of accounting digits on a computer screen, there is only one place those dollars can be spent – the good ol’ US of A. And guess who determines the price of any real goods China might get in return for spending those dollars back? Yep – the USA.
China holds US Tsy bonds to try and and get a bit of interest in a ‘risk free’ deposit facility rather than just keeping their money in a commercial bank, or some equally dodgy ‘investment’.
Note that if China chooses to buy stuff in dollars from some intermediate country, the relationship still holds, eg oil from S Arabia. The intermediate country – or chain of countries – still needs to spend those dollars back in the US to end the chain of $ exchange.
$US Tsy bonds do not ‘finance’ the US – it’s a currency issuer, thus doesn’t need to ‘borrow’ from anyone in $US, and controls any rate of interest it gives on what is effectively a +deposit+ facility for very large sums. Currently, interest paid does not cover inflation losses, so bond buyers are actually paying, in real terms, just now.
Former Fed deputy Secretary Frank Newman is quite explicit on this issue here:
Mike,
Fair comment but I am predicting the USA being beholden within a decade, not yet. Essentially, yes, the Chinese must spend the dollars in the USA but that will involve the purchase of US real estate, companies and foreign assets and the USA will ultimately be able to buy less Chinese goods. This will be especially manifest when the Yuan is allowed to float properly and that will be the tipping point. Make no mistake, while politically there is no contemplation of this reality or public awareness, the bean counters won’t take long to realise wherein the balance of power will lie in the ’20′s and then the economic reality will be inevitable to all.
U.S. debt is falling quickly. It’s corporate debt is low and the private sector are paying it back double time
Public debt is large but so it their economy and is widely expected to fall in years to come.
America has a ot less to worry about that the dysfunctional Eurozone.
Podge
The chronic trade imbalance isn’t a good thing at all, but my point was that the US is in the powerful position, not China.
And China has already been knocked back from investing those dollars in major assets on US soil.
Sort of reminds me of those jokey postcards in pubs….Please don’t ask for credit as a smack in the teeth often offends!
China will have been told that any significant buy out bids for major US companies will be vetoed, so will not ask.
The world has failed miserably to resolve international trade imbalances in an agreed equitable way. The post WWII Bretton Woods conference was an attempt at that. The currency pegs worked for a while but could never continue indefinitely. Keynes did not succeed in getting his intended independent
‘Bancor’ reserve currency system to enable imbalnces to unwind in an agreed mechanism.
Instead we got US hegemony, which still remains today.
Interestingly, this problem is what Biagio Bossone is mainly working on with his ‘Group of Lecce’ effort.
Austerity in a debt based money system is theft.
Austerity measures should only be accepted if writing off of debt is part of the deal and not conversion of the debt into more debt
Reverting to the punt would wipe out the debt.
Public servants won’t let that happen as it would force them to take a more realistic wage instead of the current pay bonanza in the public service including lump sums and massive pensions. Who even came up with the idea of a lump sum upon retirement anyway?
Politicians did. And not forgetting the massive payoffs to senior civil servants/polititians that completely failed in every aspect of their job. Neary for example.
Plus the fact that public sector wages are 28% higher than private sector wages in ireland yet in Germany and Britain private sector wages are between 5 and 10 percent higher than public sector. That’s not even taking into account the lump sum and pension. No wonder the country is ruined.
Roddy molloy at fas was another great example. He even kept the company car FFs!
Could we compare like with like here? No one I know in the public sector (my examples are from academic and public libraries, schools & hospitals) is paid more than those in the private sector – hard to compare but I’m taking people who’ve a similar no. of years of experience, “senior manager” type positions (no. of staff theyre responsible for, size of company/institution, work hours etc.) In general wages in Ireland are far too high, as is rent.
Is the vital difference between national currency and Euro level currency the ability to create money out of no where, in order to “boost” our nations economy?
No the vital difference is that the exchange rate can change to reflect economic reality. In times of economic weakness the national currency falls in strength which makes exports cheaper and imports more expensive, which allows domestic alternatives to come to the fore. It balances the books without destroying the infrastructure of society.
It means that weaker countries would not have been able to piggy back on others to get cheap loans for the last decades as the markets would have priced them out when debt got too high. National currencies also means that central banks can set interest rates for the national need, so Ireland would have had higher rates as the market started to over heat.
When you look at the Euro now you have to wonder how anyone thought it could ever work.
Kardia is correct about that difference, but so is Sensei in the other points made.
Much of this is explained and clarified in the presentations linked in my other comment below, again here:
http://neweconomicperspectives.org/2013/11/randy-wray-stephanie-kelton-present-fields-institute.html
They gave us enough rope and we hung ourselves. Probably just what they wanted.
GOOD MAN DECLAN. DAMN WELL SAID. SO ABSOLUTELY TRUE. TIME TO CHOP CHOP. AND THAT DAY WILL COME. THEY JUST DONT THINK SO THE PUBLIC SERVANTS.
Austerity is not neoliberal.
Such a “Polonius” article. Very eloquently written, but little substance. ‘More matter and less art’, Mr. Hall.
The crux of the argument is as follows:
When you join the Euro, you give up your monetary policy to the ECB. As everyone probably realises, every country needs their own custom economic policy. However ECB sets one monetary policy for all – it suits the likes of Deutschland and maybe some other central European nations, but not others. There needs to be more flexibility on that front.
Another issue is the banking system. At the moment the European banking system is a bit dysfunctional. There needs to be more EU-level regulation and assistance, as opposed to regulation on a wholly national level.
And lastly, as the article correctly stated austerity does not work and historically never has. As Joseph Stiglitz said last week, by using austerity Herbert Hoover turned a stock market crash into a Great Depression.
Mike this monster EU is doomed ,for many years i have been laughed at ,derided,looked with contempt at even from family members and close friends,who were blinded by the lies and betrayal by those in power who have betrayed Ireland,well i am not being laughed at now,This monster EU is doomed ,but those who led Ireland into this mess must pay dearly ,they should be arrested ,their assets,and pensions must be seized and then jailed ,but then i awake,shure i forgot for an instant the judges only jail poor people,silly me
Pat
I find a lot to agree with in describing, yes, the EU as a ‘monster’.
Surely back in ’57 when it started there was a real desire for genuine co-operation and mutual concern for citizens’ welfare. IIRC that was (and still is) what Article 1 of the treaty was (is) all about.
I refer to the Euro in my criticisms above, but it is absolutely the creation of the EU’s core members too & incorporated in a combined treaty.
For a common currency to work, much of the key elements of a ‘United States of Europe’ would be needed, but not necessarily to an extent people might not approve……IF
that is, IF
It actually functioned in the interests of the majority ordinary citizens, not merely the elites, and left no one behind. Everybody gets education, basic health care, minimum income (wage). It is absurd to say we cannot afford this whilst we throw away probably 10% continuously of our capacity to produce by enforced mass unemployment. (It is not the fault of the jobless but simply insufficient aggregate spending and some poor distributional/hoarding decisions.)
Europe has never been wealthier. Yet we are demonstrably going backwards in ensuring citizens’ welfare.
That is not a basis for co-operation.
I think citizens’ would like to co-operate, mostly.
It is the elites, ironically with the most wealth, in all countries that seemingly don’t want to ‘share’, as precisely exposed in these last years of Euro administration.
Even worse, to my eyes, is the apparent acquiescence to the playground bullies and scammers by all the ‘advisers’, media and other officials and apologists of patently failed economics and democracy.
In pretty much every area of society we see corrupt and self serving institutions regardless of their PR or rhetoric pretending otherwise. I’m thinking here of Church, Tribunal, MP, Media, Banking, Police scandals recently exposed, not just in Ireland but everywhere. What public interest institution can we really say we trust, implicitly? I can’t think of any really. There are only ‘pockets’ of sincerity and competence. Characterised, to me, not just by their accessibility and willingness to share and help anybody, but by their typical personal disinterest in either much income or acquiring large amounts of capital wealth.
EU, Euro, or without, we still need to establish meaningful sovereignty of the ‘people’.
Did we ever have that? Yes, but only thus far fleetingly I think. Maybe the internet can make a difference this time?
\For years I was laughed at and derided for commenting on the craziness of the celtic tiger and how it could not continue, when I questioned why people were buying bad quality houses for a half a million or more in rundown areas (what else can one do? These areas will get better (they didnt), that’s the way it is, what, rent??, ah, you don’t know what you’re talking about, of course the prices will keep going up, up, up, what, you don’t have a credit card? Isn’t it mad? (said with a proud smile and awe at the amount one’s house was worth that day), a mortgage for half a million or more, car loans, house renovation loans, wedding loan, loan to go on a holiday, loan for a boat, plus credit card maxed out was the norm – these people earned 5 to 6 more times what I did and yet I was richer than they were because I didnt have a credit card, dont have a mortgage or a single bank loan and live within my means). Paying in cash was embarrassing, walking instead of getting a taxi was shocking. How come, long before there was any mention of bank crises, it was painfully clear to all of us who were living outside of Ireland in the early 2000′s that Ireland was heading for a crash? And yet, this aspect is blithely ignored in all this commentary, yes, of course what’s happening now is important and deserves to not only be criticised but to be revolted against, but to not admit that the dimensions of Ireland’s problems would not be as immense as they are now if Ireland had managed itself better and that Ireland has to take control and responsiblity for itself and stop blaming everyone else is just sad and embarrassing.
finebetty
I agree with the sentiment of what you’re saying. A certain ‘consumerist’ race to the spiritual bottom occurred, probably most shocking because I think Ireland historically seemed less affected by such greed. (Except the top few percent who are always like this everywhere it seems.)
But people had a lot of help in believing this consumerist dream thru’ being bombarded with this meme daily on television and in other media. Very American much of it, but Europe has been going this way for a long time too. Some say a real inflexion point for Ireland was the arrival of Sky TV in ’95.
Mainstream media has enormous power, esp TV, over human minds. In evolutionary terms, we’re not well equipped to deal with it. Have a look into the history of ‘PR’ and its founder, Freud’s nephew Edward Bernays, who coined the phrase ‘…because propaganda has connotations…’.
There’s a question of perspective in economics effects too, as regards our present situation.
Borrowing for consumer goods wasn’t very significant overall. Even people buying houses for themselves at inflated prices has not +yet+ caused any great banking issues. Tho’ five years of falling incomes and most significantly mass unemployment is now showing in mortgage arrears.
Again, tho’ I’d like to add some perspective. I think the desire to own our homes comes far more from feelings of personal security than ‘greed’, or consumerism. I know families who’ve had to move more than once a year, every year, for some time. Uprooting kids and everything else. Apart from the few council houses available, security of tenure is virtually non existent. And private sector housing quality, energy efficiency, even heating/damp comfort has been very poor.
What really caused the bank bailout was all the commercial lending to property developers, much of it not even spent in Ireland (UK & N Ireland was popular for speculation). In cahoots with reckless bankers prizing bonuses over the security of their own institutions. (Didn’t care, had their pensions sewn up.)
So, take heart. I think most ordinary citizens have learnt something from their personal folly, but any fallout from that is insignificant anyway compared to the mess the top few percent caused or acquiesced to. And the latter, greedy as ever, feeling as self entitled as ever, are as unrepentant as ever.
These are the ones we need to kick out of government and their continuing other positions of disproportionate state power and influence.
It does not take a rocket scientist to work that one out……people have been saying this for years………ITS A SCAM TO ROB THE PEOPLE OF EUROPE……..why can people not see that ??
None could be more flawed than this little benefit nation.
go back to bed.
There’s obviously positives and negatives to Ireland leaving the Euro zone. Probably the same could even be said in regards to the EU. We have reports on just about everything else that goes on this state, where’s the report or benefit analysis of staying/leaving the Eurozone?
It’s inexplicable that this option wouldn’t be thoroughly considered in the light of our current situation. A simple weighing up of the options. Evening the mere fact that we were considering leaving, might aid our cause in negotiations in Europe.
The real problem is welfare I would stop it immediately to discourage these lower classes from breeding fellow nothing individuals.
You should take that up with your parents.
have your say