Today I have a wind in my sails and I am heading for Greece. I am wondering if any modern day Ulysses will find much of their homeland left given current trends. The current situation in Greece exposes the stupidity of the Euro monetary system. The Greek government is running a rising budget deficit in response to the economic crisis that it faces. Much of the budget change is being driven by the automatic stabilisers. Meanwhile the financial markets are playing their usual (unproductive) tricks and making matters worse. Sitting in the middle is the undemocratic ECB which is insisting on fiscal consolidation. Pity the poor Greeks who are increasingly without work. The solution is not straightforward but I would abandon the Euro and restore currency sovereignty.

I have been looking into underemployment data for Europe today as part of a larger project which I will report on in due course. But whenever I am studying European data I think how stupid the European Monetary Union (EMU) is from a modern monetary theory (MMT) perspective. Then I read the Financial Times this afternoon and saw that Diverging deficits could fracture the eurozone and I thought there is some hope after all although that is not what the journalist was trying to convey. This is an opportune time to answer a lot of questions I get asked about the EMU. Does MMT principles apply there? Why not? Is this a better way of organising a monetary system? So if you are interested in those issues, please read on.

As a brief follow up to yesterday, German labour force data came out yesterday (Tuesday) and reveal that unemployment rose sharply in December and the disgraceful barrier of a record 5 million unemployed is now highly likely in early 2005. In December there were 4.48 million unemployed or 10.8 per cent of the active population. This is the highest level since 1990 and the second highest level in the whole period since World War II.

In the UK Financial Times article by Darryl Thomson, Dollar falls to fresh lows in thin festive trade posted December 24, the continued slide of the USD against the Euro is put down to “disappointing US economic data” (mostly sharp slowdown in new home sales). However, a so-called currency strategist claims it is the “deficits rather than the data which were weighing on investors minds”. The hoary old neo-liberal twin deficits attack on public spending is making a comeback.