{"id":31279,"date":"2015-07-03T10:58:45","date_gmt":"2015-07-03T00:58:45","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=31279"},"modified":"2015-07-03T10:58:45","modified_gmt":"2015-07-03T00:58:45","slug":"friday-lay-day-11","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=31279","title":{"rendered":"Friday lay day – The five presidents of the Eurozone remain firmly in denial"},"content":{"rendered":"

\t\t\t\tIts the Friday lay day blog again and I am in a rush. Under the smokescreen of all the Greek drama that has played out on the World stage over the last week the bosses of the Eurozone released their – Completing Europe’s Economic and Monetary Union<\/a> – (June 22, 2015), aka the Five Presidents’ report. I read it this morning. And I am glad its Friday and I can keep to my promise of not writing much here and more elsewhere (book projects). Otherwise, the blog might have ended up full of the so-called expletives given the way these Euro Groupthink morons treat the citizens of Europe. Apparently, the euro is a big success! In the land of the fairies.
\n<\/p>\n

The Report authored by Jean-Claude Juncker (President of the European Commission), Donald Tusk (President of the European Council), Jeroen Dijsselbloem (President of the Eurogroup), Mario Draghi (President of the ECB), and Martin Schulz (President of the European Parliament) claims to:<\/p>\n

\n… ‘develop concrete mechanisms for stronger economic policy coordination, convergence and solidarity’ and ‘to prepare next steps on better economic governance in the euro area’.\n<\/p><\/blockquote>\n

The opening paragraph sets the tone:<\/p>\n

\nThe euro is a successful and stable currency. It is shared by 19 EU Member States and more than 330 million citizens. It has provided its members with price stability and shielded them against external instability.\n<\/p><\/blockquote>\n

Which is so disengenous that you know the Groupthink levels are high.<\/p>\n

The euro is a major failure. Millions who use it are now unemployed and in relative states of impoverishment.<\/p>\n

One of the 19 nations states of the Eurozone is now the first advanced nation not to meet an IMF debt repayment deadline. It is a nation that is hovering on disaster after 7 years or so of grinding austerity in the name of defending this ‘successful’ currency.<\/p>\n

Even in terms of price stability it is now facing the problem of deflation – instability is not always on the up (accelerating inflation) side.<\/p>\n

The Five Presidents’ Report is the latest in several publications put out by the EU which outline how they will complete “Europe’s economic and monetary union”.<\/p>\n

But don’t wait around for it. The three-stage plan doesn’t come to fruition until 2025. There will be at least another major economic shock before then.<\/p>\n

After wading through all the literature on the creation of the current EMU – a literature that spanned 40 odd years – this document seems like d\u00e9j\u00e0 vu.<\/p>\n

All the buzz words are there – “longer-term vision”, “deepening by doing”, “rule-based cooperation”, “structural convergence” (yeh – Greece becomes like Germany!) “commonly agreed benchmarks for convergence” and on and on.<\/p>\n

The convergence farce leading up to the adoption of the common currency in the late 1990s should serve as a warning how setting strict economic and financial rules as the criteria never withstand the power of politics. The rules were flouted, cheated on, manipulated to get the political end. Not even Germany met the strict rules set down at that time.<\/p>\n

Perhaps they need to call Goldman Sachs in again as Greece did to fudge the books to make it look as though there is convergence.<\/p>\n

But by 2025 when “all the steps are fully in place, a deep and genuine EMU would provide a stable and prosperous place for all citizens of the EU Member States that share the single currency”.<\/p>\n

We have read all this guff before. That is what they said after Maastricht in 1991.<\/p>\n

The progress made since the Four President’s Report<\/a> released in December 2012 (yes, the President of the European Parliament was added to the most recent one – a sort of sop to democracy no doubt), which outlined five areas in which changes were required, to be completed by 2014 has been glacial.<\/p>\n

Arguably, advances have only been made in the area of banking. They outlined a plan for the “establishment of an effective Single Supervisory Mechanism (SSM) for the banking sector and the entry into force of the Capital Requirements Regulation and Directive (CRR\/CRDIV)” and the “Setting up of the operational framework for direct bank recapitalisation through the European Stability Mechanism (ESM)”. There has been some progress here.<\/p>\n

But in the area of fiscal policy little has been done.<\/p>\n

In the Four Presidents’ Report we read that:<\/p>\n

\n… the European Council in October 2012 asked to explore further mechanisms, including an appropriate fiscal capacity, for the euro area. It would support new functions which are not covered by the multiannual financial framework from which it is clearly separated.\n<\/p><\/blockquote>\n

There was also an “Economic rationale for such a fiscal capacity” presented along the lines that “In order to protect against negative fiscal externalities, it is important that fiscal risks are shared where economic adjustment mechanisms to country-specific shocks are less than perfect”.<\/p>\n

“Options for the shock absorption function of the euro area fiscal capacity” were also discussed and included “an insurance-type system between euro area countries” and an “ability\u00a0to borrow” at the euro-level by\u00a0this “future fiscal capacity”.<\/p>\n

They\u00a0said that:<\/p>\n

\nA euro area fiscal capacity could indeed offer an appropriate basis for common debt issuance without resorting to the mutualisation of sovereign debt.\n<\/p><\/blockquote>\n

Well no progress has been made on that and you won’t be surprised to know that in the latest Five Presidents’ Report all mention of the possible establishment of a federal fiscal capacity has disappeared. Any\u00a0notion that there might be “common debt issuance” has been deleted with the regime change at the top of the European Commission.<\/p>\n

Instead, they extol the virtues of the “‘Six-Pack’, the ‘Two-Pack’ and the Treaty on Stability, Coordination and Governance” (the fiscal compact), which they claim “have brought significant improvements to the framework for fiscal policies in the EMU”.<\/p>\n

They claim that:<\/p>\n

\nThis new governance framework already provides for ample ex ante coordination of annual budgets of euro area Member States and enhances the surveillance of those experiencing financial difficulties.\n<\/p><\/blockquote>\n

The only\u00a0concession is that they say “the current governance framework should be strengthened through the creation of an advisory European Fiscal Board.”<\/p>\n

So a pack of neo-liberal economists will be created to “coordinate and complement the national fiscal councils that have been set up in the context of the EU Directive on budgetary frameworks. It would provide a public and independent assessment, at European level, of how budgets – and their execution – perform against the economic objectives and recommendations set out in the EU fiscal governance framework.”<\/p>\n

And there is some talk of a “fiscal stabilisation function for the euro area” which might include the creation of an “automatic stabilisation” function “at the euro area level” to cushion large macroeconomic shocks. So this might include an euro-wide unemployment insurance scheme, which would add very little to the capacity of the Eurozone to promote stable growth with full employment.<\/p>\n

Any such stabilisation function would “not lead to permanent transfers between countries or transfers in one direction only” (sop to Germany).<\/p>\n

It “should neither undermine the incentives for sound fiscal policy-making at the national level, nor the incentives to address national structural weaknesses”.<\/p>\n

And “it should not be an instrument for crisis management”.<\/p>\n

In other words, it would not be a fiscal capacity that could insulate economies within the Eurozone that face negative asymmetric shocks at all.<\/p>\n

In other words, by\u00a02025, there will be no federal fiscal capacity established in the Eurozone and fiscal policy\u00a0will remain tightly\u00a0constrained by the Stability and Growth Pact and its additional components (Six, Two Packs etc).<\/p>\n

As I have argued previously, the Stability and Growth Pact provides for neither stability\u00a0nor growth. It is a recipe for on-going disaster in the Eurozone.<\/p>\n

It is amazing that given the scale of the crisis which continues that the leadership still hasn’t worked out that the monetary\u00a0union is largely unworkable in its current form and tinkering around the edges will not be sufficient.<\/p>\n

Federal systems need fiscal and monetary\u00a0policy to be aligned at the federal level and democracy requires that those policy\u00a0tools be used by those who are responsible through the electoral process to the voters.<\/p>\n

It is despairing to think of the “long-term vision” that these men<\/strong> have for their people.<\/p>\n

Trapped in neo-liberal Groupthink and firmly in denial. That is modern European political leadership.<\/p>\n

I did a radio interview yesterday and was asked whether Australia should be worried about the situation in Greece. I replied yes but only because it is a humanitarian disaster inflicted on a people by a neo-liberal ideology that is invariant to reality and the facts of its criminality.<\/p>\n

The announcer wanted to talk about bank contagion. At the end of the interview he summarised by saying “so what you are saying is that these positions are all chosen and the ECB could write off the debt and fund some growth policies in Greece without any threat to its operations”. Me: Exactly.<\/p>\n

Then we get this rubbish from a so-called progressive journalist (who is the UK Guardian’s economics journalist in Australia) on our national broadcaster’s Drum homepage (July 1, 2015) – Drum: Don’t worry, Australia isn’t facing a Greek tragedy<\/a>.<\/p>\n

A progressive writer should start of by pointing out (and explaining) to the readership that there is no valid comparison between Australia and Greece given that the former issues its own currency, sets its own interest rates and floats the currency freely on international markets and the latter has no such capacity and the opportunities that that capacity bestows.<\/p>\n

A very simple distinction but crucial to understanding the evolution of national economies since the GFC began.<\/p>\n

The Greek crisis, despite all the reactionary rubbish that is emerging about them being profligate, having too big a public sector, and having built up too much public debt as a consequence, is only all<\/strong> about them not having an independent currency and a floating exchange rate.<\/p>\n

If the high public debt was the problem then Japan should have crashed years ago!<\/p>\n

This whole comparative analysis is conducted in terms of how low Australia’s public debt ratio is and that it is only “forecast to rise 1.7 per cent of GDP this financial year and 0.7 per cent of GDP the year after”.<\/p>\n

Then we learn that after deliberation by Standard & Poors, “Australia’s AAA credit rating was confirmed” and “the financial markets are certainly not too worried about Australia at the moment”.<\/p>\n

And if those authorities are not enough we read that “certainly the IMF is not sending Greece-like warnings our way.”<\/p>\n

Disgraceful analysis.<\/p>\n

Australia is not Greece because it issues its own currency. Discussions of public debt ratios, ratings agencies, the IMF and the financial markets is irrelevant in the case of a currency issuer.<\/p>\n

Music from Athens today<\/strong><\/p>\n

In the spirit of the week I thought some Greek reggae was a good idea.<\/p>\n

This is from the Moca Revolutionaries, which is a cooperative of musicians in Greece who describe themselves as the “Jah children in Greece” who play the “the raw street sound of reggae in Greece”.<\/p>\n

The particular track is from Exo – K\u03ac\u03c0\u03bf\u03b9\u03b1 M\u03ad\u03c1\u03b1<\/p>\n

There are no bouzoukis but there is still salvation in these beautiful sounds. I am sure the words have Oxi in there somewhere!<\/p>\n