Eurozone Crisis / European Sovereign Debt
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The politics and economics of Austerity
Jeff Madrick Milos Bicanski/Getty Images A man walking past graffiti, Athens, December 6, 2011 On the last day of 2011, a headline in The Wall Street Journal read: “Spain Misses Deficit Target, Sets Cuts.”
26 December 2011 Last updated at 01:47 GMT The Berlin Wall did not mark the end of grave clashes as many thought it would If we can stop thinking about what the future might bring and embrace the present for what it is, we would be a lot better off, writes John Gray. It's been some time now since history didn't end. Twenty-odd years ago, when the Berlin Wall was coming down, there were many who believed that there would be no more serious conflicts. The American writer Francis Fukuyama, who promoted the idea of the end of history in the autumn of 1989, declared that the chief threat in future would be boredom.
John Quiggin and I have a piece on the eurozone mess in the new issue of Foreign Affairs. The piece is subscriber-only, but we’re allowed to post it (in Web format) for six months or so on a personal or institutional website. Accordingly, the piece can be found below the fold. The piece was finished some weeks ago, but I think it holds up quite well. Four things worth noting.
New York, NY - Since November 2011, the European Central Bank, under its new president, Mario Draghi, has reduced its policy rates and undertaken two injections of more than 1tr euros of liquidity into the eurozone banking system. This led to a temporary reduction in the financial strains confronting the debt-endangered countries on the eurozone’s periphery (Greece, Spain, Portugal, Italy and Ireland), sharply lowered the risk of a liquidity run in the eurozone banking system, and cut financing costs for Italy and Spain from their unsustainable levels of last autumn. At the same time, a technical default by Greece was avoided, and the country implemented a successful - if coercive - restructuring of its public debt. A new fiscal compact - and new governments in Greece, Italy, and Spain - spurred hope of credible commitment to austerity and structural reform.
Yves here. As much as the image of Frau Merkel decked out as a domme is more than my tender sensibilities can take, the metaphor seems to apt for writers like Das to pass it by. By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010) Financially futile, economically erroneous, politically puzzling and socially irresponsible, the December 2011 European summit was a failure.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph WASHINGTON, DC – Europe’s policy elite – the people who call the shots at the national and eurozone level – are in serious trouble. They have mismanaged their way into a deep crisis, betraying all of the lofty promises of unity and prosperity issued when the euro was created. The currency union may survive, but, for millions of people, the euro has already failed in its mission of sustaining growth and ensuring stability.
The European Banking System
A gude to the crisis
Breaking up the Euro
A Modest Proposal for Overcoming the Euro Crisis This “Modest Proposal” by authors Varoufakis and Holland outlines a three-pronged, comprehensive solution to the eurozone crisis that simultaneously addresses the three main dimensions of the current crisis in the eurozone (sovereign debt, banking, and underinvestment), restructures both a share of sovereign debt and that of banks, and does not involve a fiscal transfer of taxpayers’ money. Additionally, it requires no moves toward federation, no fiscal union, and no transfer union. It is in this sense, say the authors, that it deserves the epithet modest .
How much does time cost? That depends what you need it for. The time that Europe's leaders want to buy to tackle the euro crisis is a precious commodity. And its price keeps going up and up. Initially, it was supposed to cost €110 billion ($130 billion). That's how expensive the first EU bailout package for Greece was.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph CAMBRIDGE – As if the economic ramifications of a full-blown Greek default were not terrifying enough, the political consequences could be far worse. A chaotic eurozone breakup would cause irreparable damage to the European integration project, the central pillar of Europe’s political stability since World War II.
NICOLAS Sarkozy is causing a big stir after calling on November 8th for a two-speed Europe: a “federal” core of the 17 members of the euro zone, with a looser “confederal” outer band of the ten non-euro members. He made the comments during a debate with students at the University of Strasbourg. The key passage is below (video here , starting near the 63-minute mark) You cannot make a single currency without economic convergence and economic integration. It's impossible. But on the contrary, one cannot plead for federalism and at the same time for the enlargement of Europe.
A monetary union is more than just a single currency and a single central bank. Countries that join a monetary union lose more than one instrument of economic policy. They lose their capacity to issue debt in a currency over which they have full control. This separation of decisions – debt issuance on the one hand and monetary control on the other – creates a critical vulnerability; a loss of market confidence can unleash a self-fulfilling spiral that drives the country into default (see Kopf 2011).
Euro - curators