A Point of View: The endless obsession with what might be. 26 December 2011Last updated at 01:47 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. Of course it hadn't. Hard Keynesianism in the European Union. 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. Europe's short vacation. 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. But the ensuing honeymoon with the markets turned out to be brief. Satyajit Das: Europe’s The Road to Nowhere, Part 1 – Fiscal Bondage.
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.
Only the attending leaders and their acolytes believe otherwise. German Chancellor Angela Merkel’s post-summit homilies about the “long run”, “running a marathon” and “more Europe” rang hollow. The proposed plan is fundamentally flawed. Fiscal Bondage… The language was Orwellian and incomprehensible in equal measure: “Member States shall converge towards their specific reference level, according to a calendar proposed by the Commission.” Levy Economics Institute of Bard College. 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. Delusions of the Euro Zone: The Lies that Europe's Politicians Tell Themselves - SPIEGEL ONLINE - News - International. 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. Europe’s Next Nightmare - Dani Rodrik. Exit from comment view mode.
Click to hide this space 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. The future of the EU: Two-speed Europe, or two Europes? The Eurozone’s Last Stand - Nouriel Roubini. Exit from comment view mode.
Click to hide this space NEW YORK – The eurozone crisis is reaching its climax. Greece is insolvent. Portugal and Ireland have recently seen their bonds downgraded to junk status. Spain could still lose market access as political uncertainty adds to its fiscal and financial woes. By 2012, Greek public debt will be above 160% of GDP and rising. Meanwhile, the current French proposal of a voluntary rollover by banks is flopping, as it would impose prohibitively high interest rates on the Greeks. So the only realistic and sensible solution is an orderly and market-oriented – but coercive – restructuring of the entire Greek public debt.
Robert Barro: An Exit Strategy From the Euro. Until recently, the euro seemed destined to encompass all of Europe.
No longer. None of the remaining outsider European countries seems likely to embrace the common currency. Seven Eastern European countries that recently joined the European Union (Bulgaria, Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania) have announced their intention to revisit their obligations to adopt the euro. The eurozone’s terrible mistake. The FT is reporting today that the new fiscal rules for the EU “include a commitment not to force private sector bondholders to take losses on any future eurozone bail-outs”.
Eurozone Crisis, Act Two: Has the Bundesbank reached its limit? Act Two in the unfolding Eurozone drama begins this week as leaders at the European summit announce emergency measures to prevent further market turmoil.
Why the sudden urgency? Because the German Bundesbank is about to exhaust its capacity to lend more funds to strapped governments. In the wake of the 2008 crisis, some national central banks, especially those in Greece, Ireland, Italy, Portugal, and Spain (the GIIPS), have dramatically increased their loans to financial institutions.
To fund these loans, GIIPS central banks borrowed mainly – via the ECB – from other central banks, in particular the Bundesbank. In order to fund these loans, the Bundesbank sold its holdings of German assets. Playing the Ultimatum Game with Merkozy - Justin Fox. By Justin Fox | 3:32 PM December 8, 2011 It’s always good to have a Plan B, and probably a Plan C and D as well. You can’t cover every possible contingency, but having a set of options lined up in case things don’t work out as expected is a basic rule of good risk management, entrepreneurship, negotiation, career planning, and all number of other endeavors. So why is it that the creators and subsequent managers of Europe’s grand experiment with a common currency never came up with a contingency plan in case things didn’t work out?
It wasn’t that they didn’t know the risks: lots of economists were warning in the 1990s that a currency union with no mechanism for ironing out fiscal and trade imbalances between its members was doomed to fail. Partly this was the natural shortsightedness of politicians. The second death of politics. Europe – Be Greedy When Others are Fearful? « kelpiecapital. The Euro in a Shrinking Zone - Robert Skidelsky. Exit from comment view mode. Click to hide this space LONDON – The recent European Union summit was a disaster. Both Britain and Germany played the wrong game: British Prime Minister David Cameron isolated Britain from Europe, while German Chancellor Angela Merkel isolated the eurozone from reality.
Had Cameron brought an economic-growth agenda to the summit, he would have been fighting for something real, and would not have lacked allies. As it was, he fully accepted Merkel’s austerity agenda – which his own government is implementing independently – and chose to veto proposals for a new European treaty to protect the City of London. The agreement reached in Brussels forecloses any possibility of Keynesian demand management to fight recession. The Erosion of the EU. Understanding developments in the European crisis has become rather like Kremlinology, trying to figure out the meaning of subtle changes in wording and rearrangements of the Politburo on the podium for May Day parades. One example is Mario Draghi of the European Central Bank (ECB). Sometimes the bank president suggests that he will do what nearly everyone else can see is necessary for the survival of the euro: print lots of them and use some to buy EU government debt, following the example of the Fed and the Bank of England.
At other times, it’s as if Jean-Claude Trichet, a former bank governor who boasted of the ECB’s “impeccable” performance in sticking to its 2 percent inflation target, is doing a ventriloquist act, with Draghi in the unflattering role of dummy. In one respect, last week’s EU agreement was anything but subtle. EU leaders were prepared to go ahead without the United Kingdom, suggesting that they have something serious in mind. Fed Watch: Is Europe About to Unravel? Is Europe About to Unravel? , by Tim Duy: Even the illusion of political unity in Europe appears to be dissolving before our eyes. Fighting (for?) Europe: How European Elites Lost a Generation - SPIEGEL ONLINE - News - International. When Kostas Dekoumes, a 24-year-old Greek, is asked about Europe, he launches into a rant about German Chancellor Angela Merkel. Time for Plan B: How the Euro Became Europe's Greatest Threat - SPIEGEL ONLINE - News - International. Euro Debt Crisis.
Eurozone. Satyajit Das: “Progress” of the European Debt Crisis. Comment] It's time for countries to restructure their debts. If an ordinary person found themselves in a position of unmanageable debt - something which we all try to avoid - they could have a new chance. Euro Statement Translated. Eurozone leaders still don’t get it. Editor's note: This column updates the column originally posted on 8 August 2011.
The glass is now a quarter full. This Sunday, Europe’s leaders accepted two of the three steps that are necessary to bring an end to the crisis. They know what they have to do when it comes to putting Greece on a sustainable path, and when it comes to backstopping the banks. Magical Thinking. The Crisis and the Euro. Eurointelligence. European Blue-Chip Stocks Look Favorable Despite Debt Fear.