Author: Andrea Terzi

George Soros’s (incomplete) proposal to save Europe

George Soros has formulated one more call for Eurobonds here.

I’m in agreement with most of it.  Yet, not all.

  • Divergence in the Eurozone was largely caused by Germany not complying with the 2% inflation rule. Deflation, ever since 1999, gave Germany a means to lower the real exchange rate and steal demand from its partners (beggar-thy-neighbor).
  • There is nothing good with Greece running a surplus: A surplus means that financial assets owned by the private sector are reduced by the same amount (as a matter of accounting).
  • Eurobonds would compare well with U.S. Treasuries if and only if the ECB agreed to be the lender of last resort of the Eurozone
  • Remedying the euro’s main design flaw requires more than Eurobonds: There must be, at a minimum, a means to let automatic fiscal stabilizer work. Today, fiscal stabilizers cannot work and fiscal policy is pro-cyclical, as described in the chart here.
  • Hitler was the outcome of harsh reparations plus the 1931 crisis that was caused by austerity and the Reichsbank not willing to fund German Treasuries for fear of inflation.

Triste, ma vero: Stanare l’evasione non rilancia l’occupazione

Il Direttore dell’Agenzia delle Entrate, Attilio Befera, si è detto convinto che se la pressione fiscale fosse più bassa “ci sarebbe meno evasione per carenze di liquidità“. Ma da dove si comincia?

Il problema, amaro, è che reprimere l’evasione significa aggravare la disocccupazione.

È certamente dannosa la posizione di chi preferisce continuare a far finta di niente di fronte ad una quota di sommerso che non ha eguali in valore assoluto in tutta l’Unione Europea. Ma è altrettanto infondato volersi affidare alla lotta all’evasione per rilanciare l’economia, perché non è vero che distribuire più equamente il carico fiscale significa automaticamente stimolare la parte del paese che si troverebbe finalmente meno tartassata a creare posti di lavoro. Un’efficace lotta all’evasione rende più equa la distribuzione del carico fiscale, ma non è in grado di rilanciare l’economia.

 

The problem with Quantitative Easing…

… was illustrated today by Raghuram Rajan, the Reserve Bank of India governor, along these lines:

From Centralbanking.com

Rajan also questioned the existing monetary policy stance of industrial countries. Specifically, he asked whether pushing real interest rates lower through forward guidance, asset purchases or nominal rate cuts was “part of the solution, or part of the problem”.

The slow pace of growth, he said, casts doubts over whether the low interest rate environment was really encouraging people to spend and invest more.

He observed that the main spenders before the crisis were typically the people who were hit the hardest, and made the point that people who had borrowed against their houses were now struck with negative equity.

The people who saved before the crisis, he said, were largely saving for their retirements. After the crisis they find themselves needing to save more, a problem that is compounded if the central bank pushes down real interest rates and reduces their income further.

In other words, low interest rates have a contractionary effect.

The austerity chart that’s worth 1000 words


This is an update of my favorite chart these days, following the release of this year’s first-semester figures of Eurozone unemployment (19,246,000).

The overall government deficit (all 17 countries included, dotted red line) peaked in 2010, when austerity began. It has declined since then. And notice: Last time the deficit declined  (2005-07), it dropped with a bit of growth and job creation. Not because of austerity.

With austerity, the falling deficit correlates with job destruction: First time in the one-and-a-half decades of the euro’s existence.

Chart

And the reason is simple: Governments’ provision to raise taxes and cut spending has, unsurprisingly, acted pro-cyclically.

European leaders must have strong, powerful reasons to implement policies that harm the physical and emotional health of their citizens. Do they?

More on this on Social Europe.

 

 

Conviene l’euro all’Europa?

Sotto il profilo storico e politico, sì!  L’abbandono della moneta unica sarebbe un colpo fatale all’intera costruzione che l’Europa si è data dopo più di un secolo di massacri.

Quanto agli effetti del modo insensato in cui è gestito, no. Ma se l’euro non funziona dipende dalla politica dell’euro. E la politica si può (e si deve) cambiare. Creare un’Europa della piena occupazione è l’opportunità storica di questa generazione.

La mia personale preferenza politica è che l’Europa assomigli sempre di più a quella dei miei figli (che girano per l’Europa senza passaporto) piuttosto che a quella dei loro nonni (che scamparono con dolore al massacro degli anni della guerra).