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.”


Sunday, June 9, 2013

Is the IMF (and its largest shareholder) loosing patience with Euro-Austerians ?

The IMF's admission of major mistakes in the design and implementation of its 2010 economic adjustment program for Greece can only be welcomed. The IMF staff report evaluating the stand-by arrangement for Greece includes a stinging critique of the EU commission which was more focused on EU deficit targets than on growth. The question on my mind is: why did this critique come so late and why now that the failure of fiscal austerity is strikingly obvious, not just in Greece ?  

All eurozone countries that implemented fiscal expenditure cuts now have HIGHER debt ratios than before, combined with slower or negative growth, rising unemployment, poverty, and desperation. With the troika's help, the Greek economy collapsed, shrinking by 30% in three years ! As Mark Blyth notes in his highly interesting presentation "Austerity - history of a dangerous idea" below: not even the Nazis were able to achieve this during their occupation of Greece. Although quite long (1 hour), I recommend listening to Blyth's talk in its entirety, as it remains extremely enlightening right through the end:



Coming back to my question regarding the IMF critique: why now ? And why didn't the institution stop the troika's austerity policies immediately after its realization that the fiscal multiplier had been substantially underestimated, as chief economist Olivier Blanchard and his team admitted last year ? (see the WEO of October 2012 and my post "The fiscal multiplier and austerity in the eurozone") Could it be that the IMF and particularly its largest shareholder, the US, is loosing patience with Germany's unwillingness to serve as a growth locomotive in the eurozone by strengthening German domestic demand via a general rise in German wages ? Or is it Germany's refusal to allow a thorough look into the books of German banks, thus preventing a true European banking union ? Yanis Varoufakis, a Greek economist, thinks that the IMF is considering an exit from the troika because of Germany's undermining of a European banking union 

Whatever the reason, the IMF's admission of substantial policy mistakes further strengthens the people's movement against austerity in Europe. This movement is getting stronger and more pan-European every day. This weekend, civil society organizations, trade unions, and NGOs from all over Europe, including many political leaders from Germany, are holding an Altersummit in Athens, Greece. Another pan-European movement is forming to stop the 'competitiveness and convergence pact' proposed by Merkel. (see "Another Europe is possible").

If nothing else, these pan-European movements against austerity and the implementation of market-fundamentalist, neo-liberal 'competitiveness' policies in Europe helps bring together progressive Europeans  to fight against the internationally well-connected financial 'elite' that supports these policies. 
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