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. A new era, different from any before, had arrived. Of course it hadn't. In any realistic perspective the idea that a single event - however large - could mark the end of human conflict was absurd.
They were swayed by a myth - a myth of progress in which humanity is converging on a universal set of institutions and values. Something similar seems to be happening today. Life's framework. 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. First – I suspect we would put our argument that the politics are more important than the economics even more strongly in the light of current events. It looks as though demonstrations against the austerity agenda are beginning to take on a European dimension.
Second – Paul de Grauwe has a new paper which points to a complementary mechanism through which monetary union plausibly damages political legitimacy at the national level (although his discussion is largely framed in terms of the economics). Third: the Daniel Davies qualification. Finally – the piece is written in the rhetorical style of US policy articles. 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. 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. 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.”
Publications | 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. It is in this sense, say the authors, that it deserves the epithet modest. To stabilize the debt crisis, Varoufakis and Holland recommend a tranche transfer of the sovereign debt of each EU member-state to the European Central Bank (ECB), to be held as ECB bonds. Member-states would continue to service their share of debt, reducing the debt-servicing burden of the most exposed member-states without increasing the debt burden of the others.
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. Soon, it was expanded via a comprehensive rescue fund that helped out Portugal and Ireland. Then came a second bailout package for Greece, followed by an even more comprehensive rescue fund for the rest. In late September 2011, representatives in Germany's parliament, the Bundestag, had not yet voted on this expanded package -- which would put Germany alone on the hook for €211 billion -- but it was already clear to them that even that wouldn't be enough.
On top of that, the European Central Bank (ECB) is buying up sovereign bonds of debt-ridden euro-zone countries. Winning Time The argument is always that it's all about winning time. The Mistakes of the Past. 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. It would destabilize not only the highly-indebted European periphery, but also core countries like France and Germany, which have been the architects of that project. The nightmare scenario would also be a 1930’s-style victory for political extremism. Free trade and the gold standard had required downplaying domestic priorities such as social reform, nation-building, and cultural reassertion. As my Harvard colleague Jeff Frieden has written, this paved the path for two distinct forms of extremism. Fortunately, fascism, communism, and other forms of dictatorships are passé today. 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. Financial pressure on Italy is now mounting. 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. Even if the face value of the Greek debt were not reduced, a maturity extension would still provide massive debt relief – on a present-value basis – to Greece as a euro of debt owed 30 years from now is worth much less today than the same euro owed a year from now.
Robert Barro: An Exit Strategy From 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”. If this principle really does get enshrined into some new treaty, it will be one of the most fiscally insane derelictions of statesmanship the world has seen — but it certainly helps explain the short-term rally that we saw today in Italian government debt.
Right now, the commitment is still vague: Ms Merkel agreed that private sector bondholders would not be asked to bear some of the losses in any future sovereign debt restructuring, as she had insisted this year in the case of Greece’s second bail-out. However, future eurozone bonds will still include collective action clauses providing for potential voluntary rescheduling of private debt.Ms Merkel said it was imperative to show that Europe was a “safe place to invest”. You can safely ignore the bit about collective action clauses. 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. Asshown in Figure 1, between December 2007 and September 2011 the central banks of the GIIPS increased their loans to domestic financial institutions by nearly €300 billion. Figure 1. Source: IFS and Bundesbank, Monthly Bulletins. Table 1. Figure 2. Source: Bundesbank, Monthly Bulletins. Table 2. Playing the Ultimatum Game with Merkozy - Justin Fox. The second death of politics. The recent rise of technocratic governments in Italy and Greece is the culmination of a process that has been unfolding in Europe over the last 20 years. Since the collapse of the Soviet Union and the subsequent triumph of neoliberal ideology, there has been a trend toward de-politicisation, a wholehearted embrace of the neoliberal order apparently devoid of a viable and promising alternative. Politics died its first death in celebrations of a growing consensus that communism was a thing of the past, sealed by Francis Fukuyama's diagnosis of the end of history.
Apparently lacking a clear enemy, neoliberalism was ready solemnly to declare its worldwide hegemony. To be sure, we also observed flashes of political polarisation in the post-9/11 world. It is, in the first instance, this crisis of ideology that explains much of what is going on in Europe (and, to a lesser extent, in the United States) today. Technocratic regimes 'Politics without 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.
This is the wrong cure for the eurozone crisis. But Merkel’s analysis is utterly wrong. More immediately important is the failure of the proposed “fiscal union” to do anything for European recovery. So, will the single currency survive? 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. But what? Fed Watch: Is Europe About to Unravel? 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. When Oleguer Sagarra, a 25-year-old Spaniard, is asked the same question, he says that Europe represents the only chance to find work. Karl Gill, a 21-year-old Irishman, responds to the question by railing against the banks. And when Jacques Delors, 85, is asked about Europe, he says things like: "Europe needs a pioneering spirit," and he asks: "Do the men and women of this era truly want this Europe?
" Delors, together with former French President François Mitterrand and former German Chancellor Helmut Kohl, was one of the driving forces behind the European Union, and under his leadership as president of the European Commission, treaties were signed that would be impossible to forge agreement on today. Delors represents a time when Europe inspired the imagination of statesmen. A Look at the Zeitgeist Spaniard Oleguer Sagarra is no revolutionary. Deep Crisis. Time for Plan B: How the Euro Became Europe's Greatest Threat - SPIEGEL ONLINE - News - International. In the past 14 months, politicians in the euro-zone nations have adopted one bailout package after the next, convening for hectic summit meetings, wrangling over lazy compromises and building up risks of gigantic dimensions.
For just as long, they have been avoiding an important conclusion, namely that things cannot continue this way. The old euro no longer exists in its intended form, and the European Monetary Union isn't working. We need a Plan B. Instead, those in responsible positions are getting bogged down in crisis management, as they seek to placate the public and sugarcoat the problems. They say that there is only a government debt crisis in a few euro countries but no euro crisis, citing as evidence the fact that the value of the European common currency has remained relatively stable against other currencies like the dollar. But if it wasn't for the euro, Greece's debt crisis would be an isolated problem -- one that was tough for the country, but easy for Europe to bear. Euro Debt Crisis. Eurozone. Satyajit Das: “Progress” of the European Debt Crisis. Comment] It's time for countries to restructure their debts.
Euro Statement Translated. Eurozone leaders still don’t get it. Magical Thinking. The Crisis and the Euro. Eurointelligence. European Blue-Chip Stocks Look Favorable Despite Debt Fear.