Greqia – Mësimet greke për ekonominë botërore (Greek Lessons for the World Economy);
Italia, Spanja, Portugalia;...)]
Java e tretë:
Rregullsitë ligjore financiare –
Avokimi dhe arsimimi i investitorëve dhe formësimi i kapitalit (Investor Education and Advocacy and Capital formation);
Objektivat dhe qëllimet e rregullsisë ligjore të tregjeve financiare;
30 parimet e Organizatës Ndërkombëtare të Komisioneve të Letrave me Vlerë (The International Organization of Securities Commissions - IOSCO).
Java e katërt:
Receta për Recesion (The Recipe for a Recession)
Ekonomiksi i tregjeve financiare : Politika ekonomike (Economic Policy); Politika monetare (Monetary policy); Politika fiskale (Fiscal policy)
Tregjet financiare: të rastësishme; ciklike apo të dyja? (Financial Markets: Random, Cyclical Or Both?)
Java e pestë:
A është Evropa në prag të një krize të likuiditetit (Is Europe on the Verge of a Liquidity Crisis?)
Shteti, a mund të falimentojë? (Can Countries Go Bankrupt?).
Leksionet e Greqisë për ekonominë botërore _ Trilema politike e ekonomisë botërore (Greek Lessons for the World Economy - The political trilemma of the world economy).
Java e gjashtë:
Gurthemeli i G 20: “Hekurosja” e përçarjeve në mes të vendeve me eksporte të pasura dhe vendeve të ngarkuara me borxhe për konsum” (Ironing out rifts between export-rich countries and debt-laden consumer nations has become the G20's cornerstone).
Vendet në zhvillim dhe kriza globale (Developing Countries and the Global Crisis);
Qëndrueshmëria e Borxhit shtetëror dhe “korniza” për shtim të balancuar (Sustainability of the Sovereign debt and "framework" for balanced growth).
Java e shtatë:
Ambienti ekonomik dhe monetar në Eurozonë (Economic and Financial Structure of the European Area).
Eurozone crisis: European Union prepares for the 'great leap forward'
As EU politicians desperately try to save euro, plans emerge to deepen the union, widening Brussels regulatory powers
The Observer, Sunday 20 November 2011
As the skies over euroland darken, at least the jokes in Brussels are getting better. At a recent gathering to discuss the crisis that threatens to unravel the euro, one former member of the European parliament observed acidly: "They ought to give this year's Charlemagne prize [for services to European unity] to the bond markets. Who has done more for the cause?"
The black humour was a way of stating a bald truth: in the de facto capital of the European Union, the ongoing near-death experience of the European single currency is concentrating minds in unprecedented fashion. As governments across southern Europe buckle under the pressure of paying back their debts at ever-higher rates of interest, and even formerly "respectable" economies such as France and the Netherlands feel the chill wind of market scrutiny, the custodians of Europe's future have belatedly found their voice.
Last week the normally dour and pragmatic German chancellor, Angela Merkel, announced that the EU faces "perhaps the toughest hour since the second world war. If the euro fails, then Europe fails, and we want to prevent and we will prevent this. This is what we are working for, because it is such a huge historic project."
As the stakes rise higher than anyone thought they could, the British are increasingly seen as an irritation and even an irrelevance. On Friday David Cameron rushed between overseas meetings with three key players in this monetary psychodrama: Angela Merkel, leader of the only country with the economic heft to sort the mess out; José Manuel Barroso, the Portuguese president of the European commission which is charged with giving Brussels a plan for salvation; and Herman Van Rompuy, the hitherto invisible president of the European council of ministers, the inter-governmental body that will adopt that plan.
Cameron hoped to extract a promise that the City will not be targeted by a future financial transactions tax and a pledge that countries such as Britain that are outside the eurozone will retain their influence in the turbulent times ahead. The prime minister will have discovered that, as the European dream of integration via monetary union teeters on the brink of catastrophe, the concerns of the semi-detached are at the top of no one's agenda. The UK's decision not to directly assist bailout funds for Greece and Portugal went down badly; the subsequent exhortations from Downing Street to sort the euro mess out were greeted with exasperation.
So Downing Street will be no more than a spectator as the eurozone launches itself, in the context of crisis, into a new era. After a tumultuous late autumn, Brussels, Paris and Berlin are agreed that radical reforms are unavoidable. November 2011 will be remembered as the month when Italy nearly went under as the bond markets targeted its sovereign debt, when the Greek government came perilously close to exiting the euro altogether, and when France, for five decades in the vanguard of European integration, saw its own economic credibility questioned.
The counter-offensive is to be a risky route march to a form of economic and political union; it is likely to be deep, far-reaching and for many, whether on the political left or right, deeply problematic. Brussels officials will exercise unprecedented powers of intervention over national budgets, tax policies, labour markets. The scrutiny may extend even to a country's schools, universities and courts. Dissent, whether expressed through referendums, elections or the debating chambers of national parliaments, will have only a limited impact. The direction of travel is non-negotiable. For "Europe" – the idea rather than the geographical entity – it is now or never.
In Brussels, the headquarters of the European project for more than five decades, a siege mentality has taken hold. Even in the esoteric upper reaches of the European commission, the language has become passionate rather than technocratic. Until a few weeks ago, the prospect of a speech from Barroso would have sent all but the most ambitious and committed in search of an exit door. "He's normally quite boring," confessed one member of Barroso's political tribe at a euro debate earlier this month. It turned out, however, that Barroso was on belligerent and coruscating form.
The eurozone has been limping along like a man with one leg, he told the audience. A monetary union, a currency, needs an economic and political union to walk properly. The markets were targeting that weakness in the euro's construction. But Barroso also delivered a message that went to the emotional core of the European project. Born in the aftermath of war, ruin and destitution, surely the European project could cope with an army of bond traders, however powerful.
"If this is a mess," he stated with evangelical fervour, "I prefer this mess to totalitarian occupation by the Soviets or a Europe where there was no food. Some of the worst events in human history happened here on this continent. So if you compare then to now, well, we have our current difficulties but in comparison…" The words of defiance were greeted with tumultuous applause.
The European Union has known crises before. There was an enormous row in the 1960s, when Charles De Gaulle's France vetoed British entry, which eventually took place in 1973. In 1999 all 20 commissioners resigned after allegations of corruption in high places, prompted by revelations from a Dutch whistleblower named Paul van Buitenen. In 2005, there were the disastrous results of referendums held in France and the Netherlands, when no-voters scuppered a new EU constitutional treaty, which led to a prolonged bout of navel-gazing in Brussels. But there has never been anything like the current crisis over the euro.
"We are quite worried, to use the British manner of understating things," one senior EU diplomat said. "We need to get through Christmas and keep this ship afloat."
Assuming that can be done, the heavy lifting will only just have begun. One European diplomat paraphrases the EU's Luxembourgish-French founding father, Robert Schuman: "The size of the solution has to be in proportion to the problem we're solving." Twelve months of bailouts, Greek riots, toppled governments and a market meltdown have been alarming enough, but a crisis of sovereign debt could soon be replaced by a crisis of democracy.
Jean-Claude Juncker, the prime minister of Luxembourg and current president of the Euro-Group, once joked: "We all know what to do, but we don't know how to get re-elected once we have done it." The quip has gained a frightening new relevance ahead of a "great leap forward" to an economic union that can keep the markets at bay. The hardcore eurozone countries, led by Germany, have made it clear that the sovereign debt crisis leaves politicians no room for manoeuvre, however far their poll ratings fall.
The constant refrain from Berlin is that the laggards at the back of the eurozone class need to start doing their homework. In Rome, Madrid and elsewhere, the sums relating to national debt, budget deficits and state spending need to start to add up. The days when governments could go their own sweet way, ignoring treaty agreements and responsible only to their electorates, have gone.
Democratic accountability has become a secondary virtue, desirable but expendable. In Italy and Greece, the former Goldman Sachs bankers Mario Monti and Lucas Papademos, having been parachuted into highest political office, are set to raise retirement ages and cut state spending without having to canvass for a single vote. George Papandreou's attempt to hold a Greek referendum over a new bail-out package led to his ejection from office before the ballot date was even set. In Rome, Monti has not even bothered to include a single elected politician in a cabinet which must perform the most painful economic transformation in Italian postwar history.
The restlessness is already palpable. Whistles and jeers, from both right and left, greeted Monti as soon as he took his prime ministerial seat. Italians are bemused at the speed and nature of the "takeover", however much they delight in the fall of Silvio Berlusconi.
Elsewhere, in the battle to save the euro, democratic proprieties are destined to be similarly ignored, as Brussels declares a state of economic emergency. Mariano Rajoy, the man almost certain to become Spain's next prime minister after today's general election, has already claimed he will be his own man. But that illusion is likely to be dispelled well before the new year.
This Wednesday, Barroso will present proposals for eurozone-wide "stability bonds" – collectivised debt which could be sold at interest rates that the likes of Italy and Spain could afford.
For the markets to bite the bonds would have to be backed up by the might of Germany, the only big eurozone country whose finances are considered beyond reproach. By pooling its debt with its cash-strapped neighbours, Berlin would be vouching for Rome, Madrid and any other government that entered the bond traders' sights. But the price for such solidarity will be very high.
"If eurozone debt is going to be 'mutualised'," said Guy Verhofstadt, the former prime minister of Belgium and now leader of the liberal group in the European parliament, "then there's also going to have to be a debt reduction scheme. All countries will have to eventually get back to the 60% of GDP figure. And someone or some independent institution is going to have to police that. I was in the Council of Ministers for nine years. I know from experience that prime ministers don't police each other, don't point the finger at each other for bending the rules."
The new "police force", Verhofstadt believes, will be the European commission itself. Following the embarrassments of the French and Dutch referendums in 2005, the EU's executive arm, which functions as a kind of ministry for further integration, entered a quiet period. But led by the newly impassioned Barroso, it is determined not to let this crisis go to waste.
The buzzwords in the corridors of the commission's Berlaymont building in Brussels are "discipline, surveillance and enforcement". Countries that fail to follow the austerity writ from Berlin and Brussels are liable to be subject to harsh sanctions – perhaps fines of 0.2%-0.5% of GDP, and the withdrawal of wealth transfers from the richer regions of the EU to the poorer ones.
Fines will be complemented by intrusive "supervision". Last week Barroso told the European parliament in Strasbourg that those countries struggling to lower excessive levels of debt will also be subject to intervention from Brussels in "domains previously restricted to national governments or parliaments".
Eurozone governments pondering the meaning of that ominous turn of phrase would do well to peruse the letter sent to Rome by the Finnish economic and monetary commissioner, Olli Rehn, in the last days of Silvio Berlusconi's government. Now notorious, after being published in the Italian media, the letter contained 39 questions about Italy's economic plans. Rehn's curiosity ranged far and wide.
"Is moving the pensionable age back to 67 in 2026 sufficient?" he asked. "How will the employment of the young and of women be promoted? … How will schools with unsatisfactory results be re-structured? … How will competition between universities be enhanced? … What measures will be taken to make the civil justice system work better?" By the time the questions arrived, a team of Brussels monitors was already ensconced in Rome, burrowing into government accounts and sifting through sheaves of statistics.
No wonder Rajoy, Spain's prime minister-elect, said last week: "I believe in democracy and the right for peoples to choose their own representatives." Is the Rehn-style approach to getting the eurozone's finances in order, backed up by the threat of fines and other sanctions, compatible with democratic government? In besieged Brussels, there is little sympathy for this kind of question.
"What's the alternative?" asks one senior EU official. "We have seen democracies outstripped by the markets, which have forced decisions on elected governments. So that democratic freedom has been curtailed. How do you respond? Do you let that continue, or do you move towards stronger economic governance? And which is more legitimate, the rule of the markets or economic governance by representative institutions in which governments have a say?" He adds that he expects there to be an elected European president "within 10 years", as Brussels strives to introduce new forms of accountability within the EU institutions.
The Schuman-quoting diplomat is blunter still: the emerging global economy, dominated by China, Asia and the United States, offers no future to a quixotic monetary union hampered by the competing interests of 17 member states. As the markets have demonstrated, Europe must change: "There has to be a balance between legitimacy and effectiveness. There is an issue but if this crisis deepens people will see that the world is changing. Nations cannot act and stand alone when tectonic plates are shifting."
Verhofstadt calls for an extension of democracy in Brussels, specifically more powers for the European Parliament. That stance has also been given surprisingly strong backing by Merkel, who suggested last week an enhanced role for the parliament in providing a democratic voice for Europe's peoples. "If there's a democratic problem then let's try to resolve it," said Verhofstadt. "Let's involve the European parliament more along with national parliaments. But he too is adamant "we cannot go forward with 17 different public opinions [in the eurozone]".
Brussels is up for a fight – both with the markets and with recalcitrant national governments. But in the end, all will depend on Germany. A crisis that took the EU unawares has laid bare the overwhelming hegemony of its largest, most important and most successful economy. Even the French, who for decades ran the EU as equal partners with the Germans, are acquiring something of an inferiority complex. As bond yields on French sovereign debt began to rise alarmingly, the German magazine Der Spiegel ran a gently condescending feature on the French economy, entitled "Bonjour Tristesse" (Hello, sadness). It observed that France had been "living beyond its means for 37 years [since] the last balanced budget in 1974". On French TV, Opel car adverts are now broadcast with the voiceover in German, now a signifier of efficiency even in Paris. "No need to be ashamed of speaking German abroad any more," chortled the Süddeutsche Zeitung.
But the shadows of the past are still there, particularly when it comes to money matters. After yet another EU summit last month, one German tabloid headline read: "Hands off! Failed states are still going to get our gold!" The economic collapse of the 1920s and 30s, hyperinflation and its aftermath, are still influencing German calculations in 2011.
Without a new disciplinary apparatus, designed to keep the "reckless and feckless" on the straight and narrow, and policed by the European commission, there is not a chance that Berlin will compromise its own finances by pooling its debt with beleaguered neighbours. It would far prefer to strike out in a new elite monetary grouping, probably including the Netherlands, Austria and France. And Merkel will not countenance a massive and inflationary intervention by the European Central Bank.
So after all the half-measures, partial solutions and months of "kicking the can down the road", the eurobond route, and all that goes with it, may be the only way left to save the euro. According to Verhofstadt, "Either we do this or it's the end of the single currency."
Will the eurozone's population ultimately be reconciled to emasculated national parliaments enacting austerity programmes that may take their countries back into recession? Barroso has taken to quoting the wisdom of another of the founding fathers of the EU, Jean Monnet: "People are ready to change when they understand there is no alternative."
Why E.U. collapse is more likely than the fall of the euro
By Niall Ferguson, Published: November 19
European politics has become a giant Jenga game. Since June 2010 governments have fallen in the Netherlands, Slovakia, Belgium, Ireland, Finland, Portugal, Slovenia, Greece and Italy.
The question is not: Who will be next? That’s easy. (Spain’s Socialist government will be pulverized in this weekend’s elections.) The real question is: When will the Jenga tower topple?
Many people assume that the tipping point will come when one country — most likely Greece — leaves or is ejected from Europe’s monetary union. But the scenario that worries Eurocrats is different. They fear that a country could leave the European Union itself.
This is by no means an irrational anxiety. Under E.U. law, it would be much easier for Britain to leave the European Union than for Greece to leave the euro zone.
Thus the process of European integration has reached a richly ironic point: The breakdown of the European Union is now more likely than the collapse of the single currency that was supposed to bind it together.
This is not surprising. In March 2000, Larry Kotlikoff and I wrote in Foreign Affairs, “History offers few examples of successful adjustments on the scale necessary in certain European countries today. What it does offer are several examples of monetary unions disintegrating when fiscal strains became incompatible with the unpleasant arithmetic of a single currency.” The euro, we predicted, “could degenerate — not overnight, but within the next decade.”
Our timing was not bad. The degeneration of the single currency began in 2010, though the crisis has certainly intensified in recent months.
We specified “degeneration” to highlight the generational imbalances arising from Europe’s combination of aging populations and over-generous welfare systems. Even if there had been no financial crisis emanating from the U.S. subprime mortgage crisis that began in 2007, the European monetary system would still have degenerated as public debts soared.
But we also struggled to see how, once assembled, the euro zone could be dismantled. The costs of exit would be prohibitive for a small peripheral country such as Greece, which would overnight lose access to any source of external credit. And a Greek departure would raise the probability of others leaving, causing contagion throughout Southern Europe.
Finally, if all the weaker brethren were to leave the monetary union except Germany, Austria, the Netherlands and Finland, the strengthening of the euro would cause significant pain to the exporters of those countries. In short, almost nobody would gain from a breakup of the euro zone.
This is why I am not among the growing throng of pundits predicting the degeneration of the euro — a number of whom argued with equal self-confidence a dozen years ago that the euro would be a great success.
Anyone who closely followed events of the 1990s had a clear idea of what a monetary union with the Federal Republic of Germany would entail: short-term spending power but long-term unemployment mitigated by handouts.
Some doubt that German taxpayers will be as ready to pay doles to Lesbos and Livorno as they were to pay doles to Leipzig. But if the alternative is a breakup of the euro zone, they will do it. Chancellor Angela Merkel made that clear Monday when she urged her Christian Democrats to accept “not less Europe but more. . . . That means creating a Europe that ensures that the euro has a future. Our responsibility no longer stops at our countries’ borders.”
Those betting on a euro breakup believe that the inflation-phobic Germans will never permit large-scale bond purchases by the European Central Bank — the policy known in the United States as quantitative easing. But this needs to happen to bail out not only the Mediterranean governments but also insolvent banks — including German banks — throughout the euro zone.
In short, the European monetary union survives, albeit with a gloomy future of higher unemployment for southern Europe and higher taxes for the North.
But the fate of the European Union itself will be very different. The creation of the single currency — obeying the law of unintended consequences — set in motion a powerful process of European disintegration. The fact that not all 27 E.U. members joined the monetary union was its first manifestation. Today we have a two-tier system, with 17 member-states sharing the euro, but 10 other states — notably Britain — retaining their own currencies.
The result is that key decisions today — particularly those about the scale of transfers from core nations to the periphery — are being made by the 17, not the 27. But the 10 non-euro members may still find themselves on the hook to help fund whatever combination of bailout, haircut and bank recapitalization the 17 decide on. They may also face more stringent financial regulation or a financial transaction tax, ideas that are much more popular in Berlin than in London.
This is an unsustainable imbalance. If the euro countries are intent on going down the road to federalism — and they don’t have a better alternative — the non-euro countries will face a stark choice: giving up monetary sovereignty or accepting the role of second-class citizens within the E.U.
Under these circumstances, the logic of continued British membership in the E.U. looks less and less persuasive. British public opinion has long been deeply Euro-skeptic. If it came to a referendum, as many Conservatives would like, Britons might well vote to leave the E.U. And under Article 50 of the Treaty of European Union, withdrawal would simply need to be approved by a qualified majority of E.U. members.
In the great game of European Jenga, most people expect the French government of Nicolas Sarkozy will fall next year. But the thing that could cause the European Union to topple, or at least shrink in size, would be the outright withdrawal of Britain. And that has started to look quite possible.
Niall Ferguson, a professor of history at Harvard University, is most recently the author of “Civilization: The West and the Rest.”
NEWPORT BEACH – The sense of uncertainty prevailing in the West is palpable, and rightly so. People are worried about their futures, with a record number now fearing that their children may end up worse off than them. Unfortunately, things will become even more unsettling in the months ahead.
The United States is having difficulties returning its economy to the path of high growth and vigorous job creation. Thousands of people have taken to the streets of US cities, and thousands of others in Europe, to demand a fairer system. In the eurozone, financial crises have forced out two governments, replacing elected representative with appointed technocrats charged with restoring order. Concern about the institutional integrity of the eurozone – key to the architecture of modern Europe – continues to mount.
This uncertainty extends beyond countries and regions. Those looking around the next corner also worry about the stability of an international economic order in which the difficulties faced by the system’s Western core are gradually eroding global public goods.
It is no coincidence that all of this is happening simultaneously. Each development, and certainly their occurrence in tandem, points to the historic paradigm changes shaping today’s global economy – and to the anxiety that comes with the loss of once-dependable anchors, be they economic and financial or social and political.
Restoring these anchors will take time. There is no game plan as of now, and historic precedents are only partly illuminating. Yet two things seem clear: different countries are opting, either by choice or necessity, for different outcomes; and the global system as a whole faces challenges in reconciling them.
Some changes will be evolutionary, taking many years to manifest themselves; others will be sudden and more disruptive. Yet, as complex as all of this sounds – and, by definition, paradigm changes are complicated affairs that, fortunately, seldom occur – a simple analytical framework may help shed light on what to look for, what to expect and where, and how best to adapt.
The framework relies on an often-used analytical shortcut: identifying a limited set of explanatory variables in what statisticians call “a reduced-form equation.” The objective is not to account for everything, but rather to pinpoint a small number of variables than can explain key factors, albeit neither perfectly nor fully.
Using this approach, it is possible to argue that the future of many Western economies, and that of the global economy, will be shaped by their ability to navigate four inter-related financial, economic, social, and political dynamics.
The first relates to balance sheets. Many Western economies must deal with the nasty legacy of years of excessive borrowing and leveraging; those, like Germany, that do not have this problem are linked to neighbors that do. Faced with this reality, different countries will opt for different de-leveraging options. Indeed, differentiation is already evident.
Some, like Greece, face such a parlous situation that it is difficult to imagine any outcome other than a traumatic default and further economic turmoil; and Greece is unlikely to be the only Western economy forced to restructure its debt. Others, like the United Kingdom, have moved quickly to take firmer control of their destiny, though their austerity drives will inevitably involve considerable sacrifices.
A third group, led by the US, has not yet made an explicit de-leveraging choice. Having more time, they are using the less visible, and much more gradual, path of “financial repression,” under which interest rates are forced down so that creditors, including those on modest fixed incomes, subsidize debtors.
De-leveraging is closely linked to the second variable – namely, economic growth. Simply put, the stronger a country’s ability to generate additional national income, the greater its ability to meet debt obligations while maintaining and enhancing citizens’ standards of living.
Many countries, including Italy and Spain, must overcome structural barriers to competitiveness, growth, and job creation through multi-year reforms of labor markets, pensions, housing, and economic governance. Some, like the US, can combine structural reforms with short-term demand stimulus. A few, led by Germany, are reaping the benefits of years of steadfast (and underappreciated) reforms.
But growth, while necessary, is insufficient by itself, given today’s high unemployment and the extent to which income and wealth inequalities have increased. Hence the third dynamic: the West is being challenged to deliver not just growth, but “inclusive growth,” which, most critically, involves greater “social justice.”
Indeed, there is a deep sense that capitalism in the West has become unfair. Certain players, led by big banks, extracted huge profits during the boom, and avoided the deep losses that they deserved during the bust. Citizens no longer accept the argument that this unfortunate outcome reflects the banks’ special economic role. And why should they, given that record bailouts have not revived growth and employment?
Calls for a fairer system will not go away. If anything, they will spread and grow louder. The West has no choice but to strike a better balance – between capital and labor, between current and future generations, and between the financial sector and the real economy.
This leads to the final variable, the role of politicians and policymakers. It has become fashionable in both America and Europe to point to a debilitating “lack of leadership,” which underscores the extent to which an inherently complex paradigm change is straining traditional mindsets, processes, and governance systems.
Unlike emerging economies, Western countries are not well equipped to deal with structural and secular changes – and understandably so. After all, their histories – and certainly during what was mislabeled as the “Great Moderation” between 1980 and 2008– have been predominantly cyclical. The longer they fail to adjust, the greater the risks.
Those on the receiving end of these four dynamics – the vast majority of us – need not be paralyzed by uncertainty and anxiety. Instead, we can use this simple framework to monitor developments, learn from them, and adapt. Yes, there will still be volatility, unusual strains, and historically odd outcomes. But, remember, a global paradigm shift implies a significant change in opportunities, and not just risks.
Mohamed A. El-Erian is CEO and co-CIO of PIMCO, and author of When Markets Collide.
It's not just our leaders who are in a crisis. Democracy itself is failing
The Observer, Sunday 20 November 2011
Are the following intimations of a global crisis in the legitimacy of western democracy? Ireland's confidential budget plan, unseen by the Irish electorate, is leaked by European finance officials to the German parliament where the proposals are examined by the German finance committee.
In Italy, Mario Monti, the country's unelected new prime minister and a former international adviser to Goldman Sachs, stands in the Giustiniani Palace as head of a cabinet of similarly unelected technocrats. Imposed in place of the corrupt, useless and seedy Silvio Berlusconi to satisfy the "markets", Monti promises what we are told the markets want, and that is "sacrifices".
In Greece, both left and right of the country unite against their own technocrat, the former head of Greece's Central Bank, Lucas Papademos, brought in, too, at the behest of the markets. And in Berlin on Friday, David Cameron, the leader of the Conservative party, which could not manage to secure a mandate to govern the UK on its own, sits down with a German chancellor, Angela Merkel, whose countrymen do not trust her to handle the eurozone crisis.
BERKELEY – It may be hard to imagine that Europe’s crisis could worsen, but it just has. European Union leaders failed at their summit two weeks ago to produce anything of substance. China and Brazil are clearly reluctant to come to the rescue by providing a large injection of foreign cash. And the recent G-20 summit in Cannes produced no agreement on steps that might have helped to resolve the crisis.
Now there is the collapse of the Greek government. The trigger may have been outgoing Prime Minister George Papandreou’s ill-advised decision to call for a referendum on the EU’s rescue package (which implies further severe austerity measures); but the fundamental problem is that a brutal recession made the government’s demise all but inevitable.
The formation of a new national unity government does not mean that the Greek problem is behind Europe or the world. On the contrary, the new government’s position will be no more tenable than that of its predecessor. Until there is hope, however remote, that Greece can begin to grow again, the problem will not go away.
Even worse for financial stability, Papandreou’s announcement of a referendum provoked German Chancellor Angela Merkel and French President Nicolas Sarkozy to break an important taboo. Previously, European leaders had averred that the euro was forever, repeating at every turn that they would do whatever it took to hold the monetary union together. Last week, in a dangerous departure, Merkel and Sarkozy bluntly told the Greeks that it was up to them to decide whether they wanted to keep the euro.
Their statements were designed to beat Greek politicians into submission, and may have succeeded, at least for now. But they also opened the door to destabilizing speculation. The temptation to bet against continued Greek participation in the euro is now greater than ever. As investors place their bets, the balance sheets of Greek banks and the Greek government will deteriorate further, which could cause bearish expectations to become self-fulfilling.
The greater danger is that where Greece leads, Portugal and Italy will be forced to follow. Anyone who doubts this need only think back to 1992, when the European Monetary System fell apart.
In September of that year, Bundesbank President Helmut Schlesinger made some reckless comments about how devaluations within Europe’s system of supposed stable exchange rates “cannot be ruled out.” Schlesinger’s unguarded remarks signaled that the Bundesbank was not willing to do whatever it took to preserve the system – a signal that encouraged investors to place massive bets against the British pound and Italian lira. The result was the collapse of Europe’s exchange-rate mechanism.
If Merkel and Sarkozy are serious about preserving the euro, they will have to repair the damage caused by their reckless remarks. They should acknowledge that the only entity with the capacity to stabilize the situation is the European Central Bank. And they must give the ECB the political cover that it needs to do what is required to preserve the system.
Specifically, the ECB must do much more to support economic growth. Its decision to cut rates by 25 basis points at the first policy meeting under its new president, Mario Draghi, is the one ray of light in an otherwise darkening sky. But 25 basis points are a drop in the bucket. With Europe headed for recession, the danger of rising inflation is nil. Still, given German sensitivities, Merkel should use her bully pulpit to reassure her public.
More controversially, the ECB needs to increase its purchases of Italian bonds. Unless yields on those bonds fall to German levels, there is no way that Italy’s debt arithmetic can be made to add up. But Draghi has indicated that he is reluctant to see the ECB become a lender to governments. Reassuring the markets by adopting structural reforms, he has observed, is properly the responsibility of those governments, not of the central bank.
But structural reforms cannot be accomplished overnight. Italy needs time to put its pro-growth reforms in place. Not providing that time would sound the death knell for the euro.
Here’s where the political cover comes into play. Merkel and Sarkozy need to make the case that if the euro is to become a normal currency, Europe needs a normal central bank – one that does not merely target inflation like an automaton, but that also understands its responsibilities as a lender of last resort.
Meanwhile, Italy, now under the watchful eye of the International Monetary Fund, needs to move ahead with those pro-growth reforms in order to reassure the ECB’s shareholders that the central bank’s bond purchases are not money losers.
If it does, maybe – just maybe – there will be reason to hope that the European project’s darkest hour is just before the dawn.
Barry Eichengreen is Professor of Economics and Political Science at the University of California, Berkeley. His most recent book is Exorbitant Privilege: The Rise and Fall of the Dollar.
NEW YORK – The eurozone crisis seems to be reaching its climax, with Greece on the verge of default and an inglorious exit from the monetary union, and now Italy on the verge of losing market access. But the eurozone's problems are much deeper. They are structural, and they severely affect at least four other economies: Ireland, Portugal, Cyprus, and Spain.
For the last decade, the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) were the eurozone's consumers of first and last resort, spending more than their income and running ever-larger current-account deficits. Meanwhile, the eurozone core (Germany, the Netherlands, Austria, and France) comprised the producers of first and last resort, spending below their incomes and running ever-larger current-account surpluses.
These external imbalances were also driven by the euro’s strength since 2002, and by the divergence in real exchange rates and competitiveness within the eurozone. Unit labor costs fell in Germany and other parts of the core (as wage growth lagged that of productivity), leading to a real depreciation and rising current-account surpluses, while the reverse occurred in the PIIGS (and Cyprus), leading to real appreciation and widening current-account deficits. In Ireland and Spain, private savings collapsed, and a housing bubble fueled excessive consumption, while in Greece, Portugal, Cyprus, and Italy, it was excessive fiscal deficits that exacerbated external imbalances.
The resulting build-up of private and public debt in over-spending countries became unmanageable when housing bubbles burst (Ireland and Spain) and current-account deficits, fiscal gaps, or both became unsustainable throughout the eurozone's periphery. Moreover, the peripheral countries’ large current-account deficits, fueled as they were by excessive consumption, were accompanied by economic stagnation and loss of competitiveness.
So, now what?
Symmetrical reflation is the best option for restoring growth and competitiveness on the eurozone's periphery while undertaking necessary austerity measures and structural reforms. This implies significant easing of monetary policy by the European Central Bank; provision of unlimited lender-of-last-resort support to illiquid but potentially solvent economies; a sharp depreciation of the euro, which would turn current-account deficits into surpluses; and fiscal stimulus in the core if the periphery is forced into austerity.
Unfortunately, Germany and the ECB oppose this option, owing to the prospect of a temporary dose of modestly higher inflation in the core relative to the periphery.
The bitter medicine that Germany and the ECB want to impose on the periphery – the second option – is recessionary deflation: fiscal austerity, structural reforms to boost productivity growth and reduce unit labor costs, and real depreciation via price adjustment, as opposed to nominal exchange-rate adjustment.
The problems with this option are many. Fiscal austerity, while necessary, means a deeper recession in the short term. Even structural reform reduces output in the short run, because it requires firing workers, shutting down money-losing firms, and gradually reallocating labor and capital to emerging new industries. So, to prevent a spiral of ever-deepening recession, the periphery needs real depreciation to improve its external deficit. But even if prices and wages were to fall by 30% over the next few years (which would most likely be socially and politically unsustainable), the real value of debt would increase sharply, worsening the insolvency of governments and private debtors.
In short, the eurozone's periphery is now subject to the paradox of thrift: increasing savings too much, too fast leads to renewed recession and makes debts even more unsustainable. And that paradox is now affecting even the core.
If the peripheral countries remain mired in a deflationary trap of high debt, falling output, weak competitiveness, and structural external deficits, eventually they will be tempted by a third option: default and exit from the eurozone. This would enable them to revive economic growth and competitiveness through a depreciation of new national currencies.
Of course, such a disorderly eurozone break-up would be as severe a shock as the collapse of Lehman Brothers in 2008, if not worse. Avoiding it would compel the eurozone's core economies to embrace the fourth and final option: bribing the periphery to remain in a low-growth uncompetitive state. This would require accepting massive losses on public and private debt, as well as enormous transfer payments that boost the periphery’s income while its output stagnates.
Italy has done something similar for decades, with its northern regions subsidizing the poorer Mezzogiorno. But such permanent fiscal transfers are politically impossible in the eurozone, where Germans are Germans and Greeks are Greeks.
That also means that Germany and the ECB have less power than they seem to believe. Unless they abandonasymmetric adjustment (recessionary deflation), which concentrates all of the pain in the periphery, in favor of a more symmetrical approach (austerity and structural reforms on the periphery, combined with eurozone-wide reflation), the monetary union's slow-developing train wreck will accelerate as peripheral countries default and exit.
The recent chaos in Greece and Italy may be the first step in this process. Clearly, the eurozone’s muddle-through approach no longer works. Unless the eurozone moves toward greater economic, fiscal, and political integration (on a path consistent with short-term restoration of growth, competitiveness, and debt sustainability, which are needed to resolve unsustainable debt and reduce chronic fiscal and external deficits), recessionary deflation will certainly lead to a disorderly break-up.
With Italy too big to fail, too big to save, and now at the point of no return, the endgame for the eurozone has begun. Sequential, coercive restructurings of debt will come first, and then exits from the monetary union that will eventually lead to the eurozone’s disintegration.
Nouriel Roubini is Chairman of Roubini Global Economics, Professor of Economics at the Stern School of Business, New York University, and co-author of the book Crisis Economics.
BRUSSELS – A series of developments over the last few weeks have set in motion a downward spiral for the eurozone. Unless officials – especially German officials – act fast, the verdict of financial markets is bound to be ruthless.
First, the eurozone has failed to turn the tide. Mario Draghi, President of the European Central Bank, was right to note that, despite numerous ministerial meetings and three summits, implementation of the decision to increase significantly the firepower of the European Financial Stability Facility (EFSF) is still lacking. There are now growing doubts about the effectiveness of the EFSF.
Second, and partly as a consequence, virtually all eurozone countries’ debt is trading at a discount relative to German Bunds. While it was necessary to price risk more accurately, it is difficult to believe that the Netherlands, with a debt ratio nearly 20 percentage points lower than Germany’s, deserves to be assessed as a higher default risk. But now even the mighty Bund has started to suffer from heightened market anxiety.
Third, financial-market participants and, increasingly, real businesses are pricing in a possible breakup of the eurozone, if not the end of the euro itself. It is still difficult to think the unthinkable, let alone work out the details of it, but any rational player must now consider the possibility. If expectations of disaster build, and a growing number of players start positioning themselves to protect themselves, the consequences could become overwhelming. Not only the eurozone would suffer.
Fourth, Germany has become the eurozone’s undisputed leader. Although France continues to play its role as the other half of the European Union’s leading couple, it has lost influence and the ability to take the initiative. A weaker French economy, shakier public finances, and the coming presidential election are all combining to alter the balance with Germany. Political audacity can carry France only so far.
In this context, Germany again finds itself in a situation akin to that of the late 1980’s, when the Bundesbank was setting monetary policy for the rest of the continent. At that time, German Chancellor Helmut Kohl wisely concluded that German economic dominance of Europe was not conducive to a stable equilibrium, and that a better plan for the future was to build on Germany’s weight and influence to create a permanent common monetary order. Kohl’s insight gave birth to the euro.
Today, once again, it is in Germany’s best interest to ensure lasting stability in Europe. With foreign assets worth €6 trillion ($7.9 trillion), most of which consist of claims on its eurozone partners, Germany would lose out massively if the eurozone fragments. Claims on entities within partner countries would be redenominated in weaker currencies – or the borrowers would default on them. Obviously, German exporters would be hurt by substantial currency appreciation.
German Chancellor Angela Merkel has sensibly decided to take the lead on reforming the eurozone. But many Germans feel deceived by some irresponsible eurozone partners, giving rise to the temptation to use Germany’s current strength to toughen sanctions and coerce weaker countries into adopting constitutional changes, especially concerning fiscal policy.
This is a risky attitude. To be sure, Germany has far more leverage today than it has had at any point in the last 20 years. But attempting to extract unilateral concessions from partners is a recipe for disappointment. It is one thing is to be sanctioned for breaching the rules, as with the Stability and Growth Pact; it is quite another thing to permit elected national governments and parliaments to be overruled, and national budgets censored, by an unelected higher authority.
The EU’s members are unlikely to agree to major reform unless Germany offers something in return. Absent a more balanced deal, what is likely to emerge from negotiations is simply another layer of largely ineffectual and ultimately divisive sanctions.
The natural quid pro quo for ex ante budgetary control is solidarity through the creation of Eurobonds. Joint and several liability for public bonds is imaginable only if countries offering their guarantee – and thus potential access to their taxpayers – can exercise veto power and prevent a partner country from issuing more debt. Thus, legally binding ex ante control is a necessary condition for Eurobonds. Conversely, surrendering budgetary sovereignty to eurozone partners is acceptable only if it accompanies their guarantee that they will come to the rescue in case of accident.
Germany should be bold and use its leverage to offer a new contract to its eurozone partners: mutual guarantee of part of their public debt in exchange for strict debt limits and a new legal order in which a eurozone authority can veto an enacted budget even before it is implemented. Only such boldness will deliver the certainty that markets need – and it is Germany’s responsibility to be bold.
Jean Pisani-Ferry is Director of Bruegel, an international economics think tank, Professor of Economics at Université Paris-Dauphine, and a member of the French Prime Minister’s Council of Economic Analysis.
STRASBOURG, France | Germany deflected calls for the European Central Bank to play a bigger role in solving Europe's debt crisis but won the backing of France and Italy to unite the troubled 17-nation eurozone more closely.
Europe's biggest economy and the main financier of the eurozone's three bailouts has argued against allowing the ECB to use its firepower to ease a debt crisis that's shown alarming signs recently of spreading to big economies, like Italy.
Instead of using the ECB's cash-printing power, the eurozone's richest countries decided to use political tools to dig their way out of the crisis: Germany and France agreed Thursday to push for changes to EU treaties to bring the eurozone's economic policies more in line with each other.
"In the treaty changes, we are dealing with the question of a fiscal union, a deeper political cooperation ... there will be proposals on this, but they have nothing to do with the ECB," German Chancellor Angela Merkel said Thursday in Strasbourg, France, after meeting with French President Nicolas Sarkozy and Italy's new prime minister, Mario Monti.
Many think the ECB is the only institution capable of calming frayed market nerves and Mrs. Merkel's continued dismissal of a greater ECB role knocked market sentiment and stocks all around Europe fell again after a morning rebound.
Potentially, the ECB has unlimited financial firepower through its ability to print money. However, Germany finds the idea of monetizing debts unappealing, warning that it lets the more profligate countries off the hook for their bad practices. In addition, it conjures up bad memories of hyperinflation in Germany in the 1920s.
The ECB itself is reluctant to take on a bigger firefighting role. Its president, Mario Draghi, said earlier this month it was "pointless" for governments to depend on ECB bond buys to keep their borrowing costs down for any length of time.
ECB executive council member Jose Manuel Gonzalez-Paramo said Thursday that "euro area governments cannot expect the ECB to finance public deficits."
The ECB is "committed to its mandate to preserve price stability over the medium term ... it is not the fiscal lender of last resort to sovereigns," Mr. Gonzalez-Paramo said in a speech in Oxford, England, according to prepared remarks released by the bank.
28 November 2011 PermalinkEurope’s leaders may still harbour secret hopes that the European Central Bank will come to their rescue, but at least they seem to have understood that the surest way to make that happen is to deliver on what they have responsibility for, starting with budgets. Fiscal union is now officially on the European agenda.
For some, this is all about strengthening sanctions for budgetary slippages through more automatic decision procedures and granting the power to veto national budgets to a European body. Angela Merkel, the German chancellor has spoken along these lines recently and Mark Rutte, the Dutch prime minister, is on a similar page. However, this plan alone is not likely to deliver much more than another layer of half-effective measures.
The principle underpinning budgetary surveillance is that each country is solely responsible for its own debt, but that it can be sanctioned ex post for misbehaviour. Alternatively, countries participating in the eurozone could have joint responsibility over at least part of their public debt, but they would also agree to give their partners the right to veto their budgets before they are implemented. To be clear, this would imply that eurozone members agree to provide a guarantee to the holders of, say, Italian debt and have the right to prevent the issuance of Italian debt.
Both principles are logically consistent. The choice today is whether to move towards adopting the latter instead of the former. But the idea of establishing an ex ante veto procedure without a quid pro quo is a dream. The unilateral surrender of budgetary sovereignty – a fundamental parliamentary right – is not something democratic countries will easily agree to if they do not get anything in exchange.
This is why, if serious, the debate on fiscal union is bound to involve discussion about the issuance of eurozone bonds. However, these come in many different shapes and colours. The European Commission presented a number of proposals earlier this week. The German Council of Economic Experts also suggested its own version.
Ideally, the scheme for issuing eurozone bonds would ensure that in order to be attractive to overseas investors they are at least as safe as and more liquid than existing high-quality government bonds. It should also involve incentives to fiscal discipline so that participating governments contribute to keeping the new bonds on a sound footing. In view of these criteria, the incentives-focused ‘blue bond’ proposal by Jacques Delpla and Jakob von Weizsäcker remains the best on offer.
However, recent developments at the German constitutional court complicate matters. The court has ruled that Germany cannot enter into unlimited, open-ended commitments vis-à-vis partners.
The German experts’ proposal addresses these concerns by proposing a temporary guarantee scheme covering current debt in excess of 60 per cent of gross domestic product. They envisage the creation of a temporary redemption fund that would benefit from joint and several liability and through which participating countries could issue debt in the next few years until they have reached their quota (namely, their current debt less 60 per cent). This debt would be paid off and gradually extinguished over time. To this end, each participating country would be required to earmark specific tax revenues.
There are shortcomings in this proposal. One may wonder what would be the attractiveness of temporary eurozone bonds. Countries with high debt, such as Italy, would benefit from it more than those with low debt, such as Spain, though the scheme could be tweaked to correct this imbalance. It would also lack the permanent incentive property of the blue bond scheme. But it has two advantages. First, the temporary possibility to issue new debt under joint and several liability would give breathing space to countries in trouble, leaving them time to adjust. Second, it would be an instrument to rebuild trust. For these two reasons, it deserves serious consideration.
The writer is director of Bruegel, a European think-tank focusing on global economic policymaking