Thanks for visiting this blog, created in July 2012 out of great concern for the fate of the €uro currency area, once again on the verge of collapse due to the economically ill-advised and heartless austerity policies imposed on Greece, Spain and other heavily-indebted €uro area countries by a christian democratic German chancellor impressed with the budgeting skills of Schwabian housewives. Meant to reduce the public debt and put the countries back on a path to economic growth, these macro-economically idiotic policies are doing anything but cause "pointless misery" as Paul Krugman so aptly describes it (Bloomberg, July 23-29, 2012).

Instead of reducing public debt, the austerity measures set in motion a vicious cycle of economic contraction, rising unemployment and poverty, lower tax revenues, private capital flight, and rising public debt shares as the economy declines faster than the public debt. What’s more, the austerity-driven ‘blood, sweat and tears’ policies recommended to the European periphery derive from the same economic doctrine that brought us to the brink of disaster in 2008. These policies are not only misanthropic and counterproductive to economic growth and debt reduction in Europe, but will prove explosive for the €uro currency area unless a drastic change of course takes place - and soon.

While I do not pretend to have ‘the’ solution for the €uro crisis, I would like to offer alternative economic perspectives and views on current events, and hope to chart a more humane path toward a balanced, socially fair, and sustainable economic future for the €uro area.

On the origins of the 2008 Great Financial Crisis:
“90+% of traders are men, and they bet all of our bank deposits on liar loans which froze credit leading to 40% average losses passed on to ordinary taxpayers; then begged for trillion-dollar bailouts upon which they paid themselves 50% higher boni.”


Monday, March 17, 2014

Lady economist traveling

Dear loyal readers around the world,

I am currently on a long business trip, so posting will be sporadic.
Hope, I will be forgiven. Will be back soon.
Posted by at No comments:

Wednesday, March 5, 2014

Euro zone recovery ? If at all, highly imbalanced and with a lot of room for improvement



Europeans queuing for work.
Source:  Frankfurter Rundschau, March 2, 2014.

It is understandable that interested parties[1] aim to convince European voters that the euro zone is recovering from the crisis and that the structural reforms imposed on the periphery are showing results, namely lower risk spreads on euro zone government bonds, lower budget and trade account deficits, and blossoming economic growth.

While the lowering of budget and trade account deficits is mainly due to the severe economic austerity measures in the euro zone periphery, and +0.5% growth in the euro zone as a whole can hardly be called a success, it is true that risk spreads and yields on euro zone government bonds have normalized --> see this Bloomberg article of February 28, 2014, including yield chart for Greece: "Greek yields fall below 7% as crisis source regains confidence". There is no doubt, euro zone financial markets have calmed after ECB president Mario Draghi's historic proclamation "within our mandate, the ECB is ready to do whatever it takes to preserve the euro" of July 2012. Recent euro zone bond sales have shown that there seems to be no stopping the appetite of yield-hungry investors as long as ECB accommodation remains favorable. 

The other side of the euro story, however, conveniently remains unmentioned. Fortunately, there are still critical economists who look under the superficial veneer of the euro zone. See, for example, Yanis Varoufakis' recent economic update on Greece: "What you should know about Greece's present state of affairs." Or the Frankfurter Rundschau's thorough review of economic and social developments in Italy, Greece, Portugal and Spain: "Union der Armen." Or my own assessment of the economic impact of hundreds of €billions of taxpayer funds spent on bail-out and 'rescue' measures in the euro zone:

- Sovereign defaults have been avoided and zombie banks full of worthless assets have been saved.
- The economies of the euro zone periphery contracted severely, in Greece by 25% vs. 2009.
- Unemployment reached record levels in the periphery, among the under-25s over 50%.
- Public debt ratios are higher than 2009 as a consequence of the economic collapse in the periphery.
- Wages, pensions, and social security payments have been significantly cut, in Greece by 40%.  
- Poverty, misery, and hunger in the middle of wealthy Europe !

Conclusion: the euro and zombie banks have been saved, but the patient (the real economy and its people) is nearly dead. The pro-cyclical austerity policies combined with the wage-depressing structural competitiveness reforms have caused tremendous damage to the real economy and the social fabric of the euro zone periphery, and the damage is spreading to the core. Europe risks a lost decade with weak economic activity, high unemployment and rising poverty with dangerous deflationary tendencies, increasing the real value of public debt.  

Bravo, Merkel & Co. Great job !
No, in my monopoly game, you will NOT be able to get out of jail, collect €4000, and continue on.
I hope, European voters agree with me and show you so at the ballot box in May.
______________________
[1] namely those economic policy makers responsible for the euro zone 'rescue' measures and who are trying to win MEP seats in the European elections in May 2014. 
Posted by at No comments:
Subscribe to: Posts (Atom)