Things still not looking good for eurozone

Amberman

Sounds pretty far fetched to me

KyussBishop

Amberman wrote: »

Sounds pretty far fetched to me

Politically or economically?

It's definitely never going to happen, due to being politically impossible, but economically it's much the same as the US and its states.

KyussBishop

Scofflaw wrote: »

Ah, I see - and my point was that the policies aren't just "troika policies" but the policies of the majority of Member State governments as well. In our case, austerity is genuinely something the public have voted for, given the successful passing of the Stability Treaty by referendum.

And, as I said, the adherence to such policies is most likely the outcome of historical experiments with the spend/inflate model of depression exit. Nobody enjoys austerity, least of all politicians, and nobody expects it to work quickly, which is why there need to be penalties for not sticking the course - but the silver bullet alternatives at best don't address the underlying problems, and at worst make things worse.

That's not true though, we were never given the option of choosing recovery policies; as I said, we had the vote options of 'Austerity' vs 'Austerity + Lose bailout fund access', so there wasn't really any choice involved.

Also, in fairness, you dismiss the alternatives there, without actually addressing them; fair enough if you if you don't want to get into discussing the alternatives, no problems there, but it is a low standard where things are dismissed without finding fault in them.


I think what leads to dismissal of alternatives like this, is that people still think the current mainstream economics (which, just to give it a name, can be termed 'neoclassical'), that is taught in college, and which is in textbooks; people still mistakenly think it is respectable/credible, even after almost all the economists who align with neoclassical economics, failed to spot the current crisis coming, when all they had to do was look at 'private debt vs GDP'.

This neoclassical economic theory has huge unrecoverable flaws in it (which are well documented in books and online), but people still use it to judge alternative theories, and think "that's just not right, that doesn't fit what I learned", even though they are comparing it to the flawed neoclassical theory.

It basically rules out all alternatives which don't contain neoclassical economics flaws, because they are going to be judged in comparison to neoclassical economics and its flaws.

Scofflaw

KyussBishop wrote: »

That's not true though, we were never given the option of choosing recovery policies; as I said, we had the vote options of 'Austerity' vs 'Austerity + Lose bailout fund access', so there wasn't really any choice involved.

Also, in fairness, you dismiss the alternatives there, without actually addressing them; fair enough if you if you don't want to get into discussing the alternatives, no problems there, but it is a low standard where things are dismissed without finding fault in them.


I think what leads to dismissal of alternatives like this, is that people still think the current mainstream economics (which, just to give it a name, can be termed 'neoclassical'), that is taught in college, and which is in textbooks; people still mistakenly think it is respectable/credible, even after almost all the economists who align with neoclassical economics, failed to spot the current crisis coming, when all they had to do was look at 'private debt vs GDP'.

This neoclassical economic theory has huge unrecoverable flaws in it (which are well documented in books and online), but people still use it to judge alternative theories, and think "that's just not right, that doesn't fit what I learned", even though they are comparing it to the flawed neoclassical theory.

It basically rules out all alternatives which don't contain neoclassical economics flaws, because they are going to be judged in comparison to neoclassical economics and its flaws.

I'm not arguing the alternatives to mainstream economics - which are theoretically infinite - because they're mostly not on the table or even likely to be, and because while we can argue about them in extremely simple terms, whether they work or not has not been tested at anything even approaching the scale we're talking about.

I agree with you that neoclassical economic theory is awful stuff, but like pre-Copernican astronomy, it works to some extent, albeit with a hell of a lot of patching and twiddling.

cordially,
Scofflaw

KyussBishop

Fair enough, though it's worth noting that Post-Keynesian stuff actually has a better empirical basis, and is not really 'theoretical' in the untested sense, as it's insights are directly drawn from actual events and data, not built up in a rickety framework from abstract theory and microfoundations.

It's very much a "this is what we see happening, this explanation best fits that" set of theory, and not a "this is what our theory says, lets fit the data to it, ignoring what won't fit" kind of thing; since it's evidence based (as far as macroeconomics can be anyway), and really a collection of individual insights that observably fit the evidence better than anything else (like 'endogenous money' for one), it's actually better able to be applied for real world use than current neoclassical theory (since that ignores far too many incredibly important things).

Alternatives won't ever be on the table in the EU due to politics (don't think anything other than austerity ever will be), but it's important to recognize the very real economic alternatives and how readily they can solve the crisis, because even if politics will prevent their use within the EU, they'll become important when the Euro breaks up (and it is also the standard with which to judge the policy failures of Europe and its member states).

Cody Pomeray

Scofflaw wrote: »

The problem this time seems to be partly that we should have had a global recession in 2001, and Greenspan pumped the US through it

That's not correct.

The question is why Europe is coming through the aftershocks comparatively worse than other regions, or worse than the US itself. At this point, the problem begins. At this point it stops being about Greenspan.

I was walking down Dame Street yesterday and saw a protest by a group of young Spaniards, protesting at how failed responses to the economic crisis have caused them to leave Spain. Try telling them that their emigration was partly caused by a man who left his job before some of these people were teenagers.

FreudianSlippers

Amberman wrote: »

Show me ONE, just ONE case, where the medicine of choice of the IMF hasn't been austerity?

Remember...just ONE...then I'll shut up.

I wouldn't call the IMF 'Eurocrats' as they're an international organisation of which the US is a huge contributor. Also only 2 of the executive board are in the Eurozone (Germany and France).

The IMF has been criticised for its anti-developmental policy since it was started. If anything, the 'Eurocrats' have a softer view on austerity.

Cody Pomeray

FreudianSlippers wrote: »

The IMF has been criticised for its anti-developmental policy since it was started. If anything, the 'Eurocrats' have a softer view on austerity.

The IMF have constantly emphasized the need for growth-friendly austerity, of reviewing the effectiveness of austerity, and have even said that the Government should refrain from implementing further consolidation to make up the numbers this year if growth is disappointing.

The real divisions are on the risk sharing tools of monetary union, and that is where most economists and the IMF would come down against the "Eurocrats".

Scofflaw

Cody Pomeray wrote: »

That's not correct.

It's widely regarded as part of the explanation, I'm afraid, as is the move to financial deregulation through the Nineties and the resulting financial boom. If Spanish teenagers have difficulty with the idea that part of the explanation for their emigration has its roots before they were even born, that's an issue with their comprehension rather than having any bearing on the explanation.

Cody Pomeray wrote: »

The question is why Europe is coming through the aftershocks comparatively worse than other regions, or worse than the US itself. At this point, the problem begins. At this point it stops being about Greenspan.

I was walking down Dame Street yesterday and saw a protest by a group of young Spaniards, protesting at how failed responses to the economic crisis have caused them to leave Spain. Try telling them that their emigration was partly caused by a man who left his job before some of these people were teenagers.

Europe is generally slower to leave recessions for a variety of reasons which have been researched fairly extensively, but which boil down in essence to less flexible labour markets - less movement of people between countries and within countries, greater protection of jobs in some industries, fewer entry-level jobs, better welfare systems, and so on.

Having said that, while a lot of attention is paid to European woes, the US is hardly booming, while Japan is frankly desperate. Overall, it's hard to think of anywhere much that's really doing well, which is part of the problem.

cordially,
Scofflaw

Cody Pomeray

Scofflaw wrote: »

It's widely regarded as part of the explanation, I'm afraid, as is the move to financial deregulation through the Nineties and the resulting financial boom.

In the same way that if you want to make apple pie from scratch you have to first create the universe.

The important part for most people is the present economic reality which separates us from better faring international counterparts. The US went through deregulation, so did the Ireland, and the wider European Union a pretty long time ago.

We have to ask ourselves why is the USA seeing increased productivity and manufacturing investment, yet Ireland the Eurozone are actually seeing falling investment in manufacturing? Why is unemployment rising in Europe and falling in the USA?

Most people take the view that the answer lies in opposing fiscal policies. The US policy is expansionary, the Eurozone policy is uniformly restrictive, with policies actively promoting deleveraging and falling real wages not just in the troubled economies of Europe, but across the zone.

Europe is generally slower to leave recessions for a variety of reasons which have been researched fairly extensively, but which boil down in essence to less flexible labour markets - less movement of people between countries and within countries, greater protection of jobs in some industries, fewer entry-level jobs, better welfare systems, and so on.

This is a structural factor to be overcome in Europe. Nobody seriously believes it is the main reason for the divergence of fortunes between the USA and the Euro.

Having said that, while a lot of attention is paid to European woes, the US is hardly booming, while Japan is frankly desperate. Overall, it's hard to think of anywhere much that's really doing well, which is part of the problem.

The US is booming compared to Europe. Its short and medium term prospects are very positive with high potential growth of about 2.7% per annum.

The Japanese are moving along unremarkably but that has little to do with the sort of fiscal restrictions we see in Europe, they have their own idiosyncracies like negative inflation to concern themselves with. The USA is a better comparison for the European economy.

Scofflaw

Cody Pomeray wrote: »

In the same way that if you want to make apple pie from scratch you have to first create the universe.

The important part for most people is the present economic reality which separates us from better faring international counterparts. The US went through deregulation, so did the Ireland, and the wider European Union a pretty long time ago.

We have to ask ourselves why is the USA seeing increased productivity and manufacturing investment, yet Ireland the Eurozone are actually seeing falling investment in manufacturing? Why is unemployment rising in Europe and falling in the USA?

Most people take the view that the answer lies in opposing fiscal policies. The US policy is expansionary, the Eurozone policy is uniformly restrictive, with policies actively promoting deleveraging and falling real wages not just in the troubled economies of Europe, but across the zone.

This is a structural factor to be overcome in Europe. Nobody seriously believes it is the main reason for the divergence of fortunes between the USA and the Euro.


The US is booming compared to Europe. Its short and medium term prospects are very positive with high potential growth of about 2.7% per annum.

The Japanese are moving along unremarkably but that has little to do with the sort of fiscal restrictions we see in Europe, they have their own idiosyncracies like negative inflation to concern themselves with. The USA is a better comparison for the European economy.

I'm not sure why the US is necessarily a better comparison for the European economies (I don't think there's actually a "European economy" yet), and I'm not sure that the US is doing better. Where are the projected growth figures for the US from?

cordially,
Scofflaw

Cody Pomeray

Scofflaw wrote: »

I'm not sure why the US is necessarily a better comparison for the European economies (I don't think there's actually a "European economy" yet)

the US is a better comparison because although Japan is seeing growth, its growth is built on a very special, dangerous kind of fiscal policy. Nobody is suggesting that Europe follow the Japanese formula of exposing its banking sector to such enormous interest rate risk and potentially worsening the banking crisis.

I'm not sure why anyone would compare Japanese economic policy with European or US policy for that reason. The Japanese economy is too special.

Where are the projected growth figures for the US from?

I can't remember. It's within the range of the Fed's official forecasts of 2.3% - 2.8% in 2013, and 2.9% - 3.4% next year and works out at about the average over a 2 year timeframe.

Really economic growth forecasts are something of a mirage. If we want to get down to the nitty gritty and look and PMI and productivity gains in the US economy compared to the European economy, that tells of a proportionally even bigger, clearer and unambiguous disparity. There is an undeniable divergence in fortunes.

Whether you believe in a European economy or not is an epistemological question and not a more realistic economic one. I'm not interested in the semantics of the first kind. The fact is there is a monetary confederation and an institutional structure in place in Europe and I don't think I know of any economist that doesn't think its policies are impeding economic growth across the zone.

Scofflaw

Cody Pomeray wrote: »

the US is a better comparison because although Japan is seeing growth, its growth is built on a very special, dangerous kind of fiscal policy. Nobody is suggesting that Europe follow the Japanese formula of exposing its banking sector to such enormous interest rate risk and potentially worsening the banking crisis.

I'm not sure why anyone would compare Japanese economic policy with European or US policy for that reason. The Japanese economy is too special.

Fair point, but that doesn't make the US necessarily a good comparison either! They're also a structurally different economy in a lot of ways.

Cody Pomeray wrote: »

I can't remember. It's within the range of the Fed's official forecasts of 2.3% - 2.8% in 2013, and 2.9% - 3.4% next year and works out at about the average over a 2 year timeframe.

Really economic growth forecasts are something of a mirage. If we want to get down to the nitty gritty and look and PMI and productivity gains in the US economy compared to the European economy, that tells of a proportionally even bigger, clearer and unambiguous disparity. There is an undeniable divergence in fortunes.

Whether you believe in a European economy or not is an epistemological question and not a more realistic economic one. I'm not interested in the semantics of the first kind. The fact is there is a monetary confederation and an institutional structure in place in Europe and I don't think I know of any economist that doesn't think its policies are impeding economic growth across the zone.

I wouldn't disagree, but then as far as I'm aware the current policies are not intended to produce growth, but to produce deleveraging, retrenchment, reduced unit costs and smaller public deficits. They're not intended to be pro-growth policies but cleanup ones.

Whether that's the right thing to do is obviously open to question, but it's not simply the case that we should look at what the US is doing and immediately emulate it because hey they've got growth! We did more or less that when the US last grew its way out of a recession in 2001, and that didn't really work out all that well. Whether what the US is doing to produce growth at this point is right in the medium to long term is not any kind of open and shut question.

What Germany did in the early part of last decade when the rest of us were partying was derided across the financial press as boring silly old hat stuff that restricted their growth - and now everybody's claiming they somehow cheated their way to their current economic strength using the euro, even though the euro was cited at the time as holding them back. It strikes me that the US is doing again what it did in 2001, and it strikes me that perhaps this time doing what the Germans did back then rather than going along with the US might be a better long-term option, even though all we want to do is to get back to the party.

cordially,
Scofflaw

Cody Pomeray

Scofflaw wrote: »

They're also a structurally different economy in a lot of ways.

Yep we're not economic twins at all.

But if anything, the structural differences you mention make austerity less likely to succeed as a Eurozone policy than a US one.

For example you mentioned price stickiness as one difference. That's a big one so lets go with that. What happens when fiscal tightening causes a fall in real salaries and prices 'stick'? National economic activity declines. Imports from within the Eurozone decline. Eurozone economic output declines. Worse than that industry responds by holding off on investment.

Another characteristic of the Eurozone: the big fiscal multiplier. Again, lets be rational, the size of the multiplier makes austerity less helpful and makes targeted public investment attractive, because we know that public capital not only benefits consumption but industrial productivity.

This is why Europe needs alternative policies, like the ECB driving down yields, like a targeted stimulus package. Where do we see those measures? the US. is it working there? Yes. Could it work here? Absolutely, just give it a shot.

as far as I'm aware the current policies are not intended to produce growth

Mission accomplished. But here's where you lost me.

it strikes me that perhaps this time doing what the Germans did back then rather than going along with the US might be a better long-term option, even though all we want to do is to get back to the party.

Leaving aside the economics for a moment, you have to remember we're talking about peoples actual lives here.

I don't like the moralizing tone of asking young people like the Spanish protesters I mentioned to sit back, wait and suffer years of high unemployment at a crucial time in their lives when the economic merit of that penitent tone is very doubtful.
I disagree that we want to get back to the party too. Those Spanish young people came from a society with 55% youth unemployment. They don't want a party. They just want a job.

Sitting back and waiting is all very well if you're a middle aged German MP with most of your life behind you. The rest of us have futures to establish.

Scofflaw

Cody Pomeray wrote: »

Yep we're not economic twins at all.

But if anything, the structural differences you mention make austerity less likely to succeed as a Eurozone policy than a US one.

For example you mentioned price stickiness as one difference. That's a big one so lets go with that. What happens when fiscal tightening causes a fall in real salaries and prices 'stick'? National economic activity declines. Imports from within the Eurozone decline. Eurozone economic output declines. Worse than that industry responds by holding off on investment.

Another characteristic of the Eurozone: the big fiscal multiplier. Again, lets be rational, the size of the multiplier makes austerity less helpful and makes targeted public investment attractive, because we know that public capital not only benefits consumption but industrial productivity.

I don't think I mentioned price stickiness, or the fiscal multiplier, and I'd need to check that those factors are the way round you have them, although I can see various reasons why price stickiness might be more of an issue in Europe.

Cody Pomeray wrote: »

This is why Europe needs alternative policies, like the ECB driving down yields, like a targeted stimulus package. Where do we see those measures? the US. is it working there? Yes. Could it work here? Absolutely, just give it a shot.

Driving down yields on what, sovereign debt? Er, that is a policy, and seems to be working.

Cody Pomeray wrote: »

Mission accomplished. But here's where you lost me.


Leaving aside the economics for a moment, you have to remember we're talking about peoples actual lives here.

I don't like the moralizing tone of asking young people like the Spanish protesters I mentioned to sit back, wait and suffer years of high unemployment at a crucial time in their lives when the economic merit of that penitent tone is very doubtful.

There's no 'penitence' involved, just bad luck. I had the bad luck to graduate in the late Eighties, when there were no jobs here (and not many elsewhere either). It sucks, but it's not being done as some kind of punishment, it's just what's happening when you're entering the workforce. If you'd come out ten years before, it would have been happy days, and you'd have done nothing to deserve that either.

But Ireland's austerity policies in the late Eighties/early Nineties, which drove me to emigrate, produced an economy which meant I could come back and start a company here in the latter half of the Nineties.

Cody Pomeray wrote: »

I disagree that we want to get back to the party too. Those Spanish young people came from a society with 55% youth unemployment. They don't want a party. They just want a job.

Sitting back and waiting is all very well if you're a middle aged German MP with most of your life behind you. The rest of us have futures to establish.

Actually, a serious downturn is a heck of a lot worse if you're middle-aged. If I were in my early twenties again, I'd be sleeping on friend's couches, or piled 12 to a house in London sleeping in shifts, as I was then. But I can't really ask my family to do that. If I was in my twenties I'd be able to make enough money to have a social life whether I was on part-time work or on the dole, and an entry-level job would make me prosperous, whereas now it wouldn't begin to put a dent in my outgoings. The middle-aged tend to be protected at the expense of the young during recessions for exactly that reason - and suicide rates tend to rise amongst the middle-aged in recessions rather than the young, also for that reason.

And if the policies that are currently in place do produce a cleaned up economy with real growth rather than another bout of fiscally-stimulated expansion followed by another bust, then I'd be able to have a decent career by my early thirties - again - whereas if I was a pensioner whose savings had been wiped out in bank shares, I'd probably be dead before the current policies pay off.

I'm not saying the policies will work, and I doubt they're the best of all possible policies, but I don't see any magic wand waving as likely to do better in the longer term.

cordially,
Scofflaw

Cody Pomeray

Scofflaw wrote: »

I don't think I mentioned price stickiness, or the fiscal multiplier, and I'd need to check that those factors are the way round you have them, although I can see various reasons why price stickiness might be more of an issue in Europe.

My mistake you mentioned inflexible labour markets not sticky prices. But the fiscal multiplier, poor competition and price stickiness are the things that distinguish the eurozone in terms of leaving a recession slowly, and are the reasons why we should be appalled at someone someone along with an austerity prescription for the entire bloc.

Driving down yields on what, sovereign debt? Er, that is a policy, and seems to be working.

It's vaguely in there yes. But yields haven't come down far enough. I'm talking about bringing cost of borrowing down to the same level as the pace of growth

But Ireland's austerity policies in the late Eighties/early Nineties, which drove me to emigrate, produced an economy which meant I could come back and start a company here in the latter half of the Nineties.

I think the one place nobody can criticise austerity is in Ireland. We break the rules on that front because we are more competitive, so historically we tend to respond well to austerity. The Government are pursuing the right policy here, and they did so in the late 80s too.

If the Government had somehow managed to pursue a more irresponsible economic and fiscal policy when you were starting off as an adult, you may not have had that opportunity to return years later.

That's what Southern Europeans are looking at, just from the other side of the coin.

I take your point about this not being a pleasure cruise across the age groups.

And if the policies that are currently in place do produce a cleaned up economy with real growth rather than another bout of fiscally-stimulated expansion followed by another bust,

I don't think Eurozone peripheral governments can cope with a fiscally stimulated expansion.

A improved version of Hollande's proposals of EIB funding would be more ideal.
http://www.businessweek.com/news/2012-05-15/eu-investment-bank-seeks-more-capital-as-leaders-tilt-to-growth

KyussBishop

Scofflaw wrote: »

And if the policies that are currently in place do produce a cleaned up economy with real growth rather than another bout of fiscally-stimulated expansion followed by another bust, then I'd be able to have a decent career by my early thirties - again - whereas if I was a pensioner whose savings had been wiped out in bank shares, I'd probably be dead before the current policies pay off.

I'm not saying the policies will work, and I doubt they're the best of all possible policies, but I don't see any magic wand waving as likely to do better in the longer term.

Where does the idea come from that a fiscally-stimulated expansion is a bad thing? It was the expansion of private debt (recklessly put into an unsustainable property boom) which caused the crisis, and the subsequent deleveraging of it now which is holding the crisis in place.

Since private expansion isn't possible or desirable right now, fiscal expansion (put into sustainable areas) is precisely what is needed to solve the unemployment and public services issue, and to help the private sector deleverage and get back on its feet.

Fiscal expansion doesn't have to be based on unsustainable private industry (like housing/construction related taxes were), and it can be disconnected entirely from private industry concerns, by utilizing monetary policy.


We can't do that on our own (unless the Euro falls apart; which is probably what it will take), but well managed fiscal expansion is pretty much the only actual solution there is to the crisis (and when I say crisis, I talk not just of the narrowly-defined economic crisis, but the human crisis in worsened services and unemployment).

Austerity just involves letting the crisis take its course, without really trying to deal with the human part of the crisis at all.

Scofflaw

KyussBishop wrote: »

Where does the idea come from that a fiscally-stimulated expansion is a bad thing? It was the expansion of private debt (recklessly put into an unsustainable property boom) which caused the crisis, and the subsequent deleveraging of it now which is holding the crisis in place.

Since private expansion isn't possible or desirable right now, fiscal expansion (put into sustainable areas) is precisely what is needed to solve the unemployment and public services issue, and to help the private sector deleverage and get back on its feet.

Fiscal expansion doesn't have to be based on unsustainable private industry (like housing/construction related taxes were), and it can be disconnected entirely from private industry concerns, by utilizing monetary policy.


We can't do that on our own (unless the Euro falls apart; which is probably what it will take), but well managed fiscal expansion is pretty much the only actual solution there is to the crisis (and when I say crisis, I talk not just of the narrowly-defined economic crisis, but the human crisis in worsened services and unemployment).

Austerity just involves letting the crisis take its course, without really trying to deal with the human part of the crisis at all.

That's mostly but not quite entirely true, since attempts are made to deal with the human part of the crisis, but, yes, within the limits imposed by overall letting the crisis work its way out of the system - although, again, it's not simply being left to do so at its own pace either, but being actively pushed forward.

As far as I can see, this is not being done for lack of conceivable alternative policies, or for the pleasure of prolonging public misery, or for any lizard man plans of financial enslavement, but because while everyone would like to concentrate on dealing with the human part of the crisis (that's where the votes are, quite aside from ordinary decency), and everyone would like to "solve the crisis", there doesn't seem to be a way of doing that which doesn't carry the downside risk of making things worse, and requiring deeper and even less voluntary austerity further down the line.Even the least risky solutions generally involve just shifting the pain to someone else, usually those countries which have already undergone painful (or at least uncomfortable) restructurings and fiscal tightenings of their own some time ago.

cordially,
Scofflaw

Cody Pomeray

KyussBishop wrote: »

Where does the idea come from that a fiscally-stimulated expansion is a bad thing?

Because demand is already weak due to falling real wages and you risk not achieving anything by hitting wages further.

It would be more sensible to stimulate the troubled economies using an agency like the EIB which can maximise a stimulus as a multiple of whatever capital base is applied. It also encourages private sector banks to participate in the stimulus, which probably wouldn't happen under a fiscally stimulated expansion.

KyussBishop

Scofflaw wrote: »

That's mostly but not quite entirely true, since attempts are made to deal with the human part of the crisis, but, yes, within the limits imposed by overall letting the crisis work its way out of the system - although, again, it's not simply being left to do so at its own pace either, but being actively pushed forward.

As far as I can see, this is not being done for lack of conceivable alternative policies, or for the pleasure of prolonging public misery, or for any lizard man plans of financial enslavement, but because while everyone would like to concentrate on dealing with the human part of the crisis (that's where the votes are, quite aside from ordinary decency), and everyone would like to "solve the crisis", there doesn't seem to be a way of doing that which doesn't carry the downside risk of making things worse, and requiring deeper and even less voluntary austerity further down the line.Even the least risky solutions generally involve just shifting the pain to someone else, usually those countries which have already undergone painful (or at least uncomfortable) restructurings and fiscal tightenings of their own some time ago.

Well, if we're considering alternatives on their economic and human merit (not discarding them on the ideological/political difficulties), then the policies are available which can resolve the crisis, while in the long run, not putting an undue burden on other countries.

If (skipping over the meat of the tangled Eurobonds discussion for a second) you treat the EU as a single country, like the US, the EU-wide public debt vs GDP allows all of the space Europe needs to reach recovery, using Eurobonds, and all countries can meet their debt-obligations in the long run, with temporary assistance for individual countries (to be balanced later) where that would be unsustainable in the short run.

There is also the public use of money creation, which would obsolete Eurobonds entirely (as well as all of their political problems); this is usable (within inflation targets), without negatively impacting any EU member states in either the short or long term. (a good link I posted on the issue of private money creation, on another thread)


These solutions don't exhibit the problems you describe there; you could argue Eurobonds might, but only in the short-run, and the money creation obsoletes those concerns entirely.

I know this is likely to switch to pointing out the political impossibility of either of these options, but your post was discussing this purely on economic merits.

KyussBishop

Cody Pomeray wrote: »

Because demand is already weak due to falling real wages and you risk not achieving anything by hitting wages further.

It would be more sensible to stimulate the troubled economies using an agency like the EIB which can maximise a stimulus as a multiple of whatever capital base is applied. It also encourages private sector banks to participate in the stimulus, which probably wouldn't happen under a fiscally stimulated expansion.

I think the first sentence is assuming stimulus on the back of increased taxes; that's not what I advocate, stimulus doesn't have to rely purely on taxes.

The EIB however, is indeed precisely what I advocate; if you combine that with Eurobonds, you would have an extremely powerful stimulus mechanism for restoring the entire EU.