A guest commentary by Henry Kaspar
Kantoos‘ and my articles on whether insolvency or illiquidity concerns are driving the euro crisis have provoked a number of reactions, both here and in other blogs. This is an attempt to reply to the main criticisms and counter-claims.
1. “As long as there is liquidity, solvency does not really matter”
This is Ryan Avent’s position, and it is remarkable indeed. Note that the view is not “the Italys and Spains are fundamentally solvent and this is just a market panic” – it is “sufficient liquidity makes solvency irrelevant”. Not only do I find it impossible to agree, the view seems so absurd that I wonder whether I misunderstand Avent. After all he continues:
Convince markets that solvency is irrelevant and you allow the damaged institutions time to muddle their way back to health.
The sentence contains a contradiction in terms: institutions that can be nurtured back to health are not insolvent (=incapable of generating the revenue to repay their debts). But this apart, I agree with Avent that the peripheral euro area sovereigns should be kept afloat as long as they are muddling their way back to health (within a reasonable time frame). The point is that outside Ireland and maybe Spain, this is not what we observe. And this is a problem: in a currency union, uncompetitive economies that fail to engineer sufficiently large internal devaluations – or indeed an internal devaluation at all – cannot return to health, no matter how much time and liquidity they are being granted.
2. “If everybody devalues nobody wins”, “it’s a matter of the math”
Another point made by Avent, but also by many others, for example Matthew Yglesias. The answer is: not everybody should devalue – and not everybody does.
Matt_US kindly pointed to the ECB Statistical Yearbook that contains unit labor cost data through Q2 2011 (p. 41). They show that with the remarkable exception of Italy, 
all crisis countries are now devaluing. Against who? Economies like Finland or Germany (yes, Germany) that are close to full employment and are beginning to feel wage pressures (in fact this is not entirely new – we observed this already in 2009).
This is how adjustment in a currency union should – and can only – work. Overvalued economies devalue through cuts in labor cost to restore competitiveness and growth prospects; undervalued economies attract capital inflows that stimulate domestic demand and put upward pressure on wages and prices, thus reducing their competitive edge. As Kantoos and myself have pointed out repeatedly, Germany found itself in a poor competitive position in the early 2000s, forcing it through years of painful wage cuts and capital outflows, while Europe’s banking system channeled German savings to the euro area periphery. This process is now turning around.
[P.S.: the European tragedy is that capital flows funded unproductive booms in real estate (Spain) or government spending (Greece) rather than investments in the tradable sector - this is where the process went wrong. The countries that revalue now should work hard to avoid repeating this mistake].
Unfortunately, internal devaluation is tough. Assume Portugal is overvalued by 20 percent, and suppose it maintains its current speed of adjustment, i.e. -0.9 percent per year. If unit labor costs for the average of the euro area continue to grow by just 0.8 percent annually, it will take 14 years until Portugal has restored a competitive position. Neither investors nor the Portuguese and wider European public will grant the process that much time.
But suppose Portugal doubles its efforts, while unit labor costs in the euro area grow by 2 percent (instead of 0.8 percent) per year. This cuts the necessary period of adjustment to less than 7 years – still stiff, but at least imaginable. Here is where the ECB comes into play: by allowing somewhat more inflation it could facilitate adjustment, and thereby improve the prospects of the euro area to function. But the ECB can only facilitate adjustment, it cannot replace it. As long as labor costs in Italy grow faster than for the average of the euro area, Italy will be unable to safeguard competitiveness and, therefore, solvency.
3. “Ireland is different from Portugal et al.”
Without question. Ireland’s labor market is more flexible than those of the southern European PIIGS (=it is easier to reduce unit labor costs), it is a more open economy (=a given cut in unit labor costs triggers a larger adjustment in the external balance), and it has a more diversified export base, with important trading partners outside the euro area (=it is less exposed to euro area specific shocks). So overall Ireland is in a better position to adjust.
Unfortunately, all this means is that Ireland is better suited for membership in a currency union than others. It does not invalidate that capacity to adjust is a pre-requisite for being part of the euro area.
[P.S. Paul Krugman is right that Ireland's CDS spread went back up some 50 bps in the days before the Brussels summit. This does not undo the different trend from Portugal since mid-year, however].
4. “All this is inhumane”
This is a common, anti-intellectual claim against any economic reasoning (here made eloquently by the poster Marbleone). But in this specific context there is a wider truth to it: the economics of currency unions are brutal and rigid. With multiple currencies, competitiveness can be regained through exchange rate adjustment, and excess debt can, at least in part, be inflated away. With a single currency, wage adjustment takes the place of exchange rate adjustment, and fiscal austerity replaces inflation (a tax on money holdings).
As a result, there are few (if any) examples in history of heterogeneous countries that were able to tie their currencies together for long periods. During the classical 19th century gold standard – often hailed as prime example of a functioning currency union – countries outside the gold core (U.K., U.S., Germany, France) were repeatedly forced off gold and into default, especially during the deflationary 1880s and early 1890s. And also in the core countries there was strong popular opposition against the rigid constraints of a fixed currency, U.S. presidential candiate William Jennings Bryan famously demanded in 1896 “not to crucify mankind on a cross of gold”. In the 1920s, the attempt to restore gold parity ended in an economic, financial and political implosion without parallel. Since World War II, emerging economies have suffered primarily the pitfalls of fixed and quasi-fixed exchange rate regimes. Argentina’s traumatic abolition of its currency board with the U.S. dollar in 2002 is a recent example, when an appreciating U.S. dollar rendered the Argentine economy uncompetitive and undermined all attempts to control the situation with austerity.
From a historical perspective, it would be an exceptional feat if the Europeans could maintain their currency union for an extended period – at least with its current, heterogeneous membership. To stand a chance, the capacity of the euro area economies to adjust is indispensable.
Europas Krise und die Rigidität von Währungsunionen
Ein Gastkommentar von Henry Kaspar
Die Artikel von Kantoos‘ und mir über Insolvenz vs. Illiquidität als Triebkräfte der Eurokrise haben vielfältige Reaktionen provoziert, hier ebenso wie in anderen Blogs. Dies ist ein Versuch auf die am häufigsten vorgebrachten Kritikpunkte und Gegenpositionen einzugehen.
1. “Solange es genügend Liquidität gibt ist Solvenz nicht wichtig”
Dies ist Ryan Avents Position, und sie ist in der Tat bemerkenswert. Der Standpunkt ist nicht “die Italiens und Spaniens sind grundsätzlich solvent und all das ist nur Marktpanik”. Sie ist: “hinreichend Liquidität macht Solvenz irrelevant”. Nicht nur finde ich es unmöglich dem zuzustimmen, die Sichtweise scheint so absurd dass ich mich frage ob ich Avent nicht missverstanden habe. Schliesslich fährt er fort:
Überzeuge die Märkte dass Solvenz irrelevant ist, und Du erlaubst den beschädigten Institutionen sich zurückzumogeln zu Gesundheit.
Der Satz enthält einen inneren Widerspruch: Institutionen die gesund gepflegt werden können sind nicht insolvent (=außerstande hinreichend Einkommen zu generieren und ihre Schulden zurückzuzahlen). Aber von diesem Punkt abgesehen stimme ich Avent zu: die Staaten in der europäischen Peripherie sollen über Wasser gehalten werden solange sie sich tatsächlich auf dem Weg zur Gesundung befinden (und ihn innerhalb eines vernünftigen Zeitraums bewältigen können).
Der Punkt ist dass wir außerhalb Irlands und vielleicht Spaniens dergleichen nicht beobachten. Und dies ist ein Problem in einer Währungsunion. Wettbewerbsschwache Volkswirtschaften, die keine hinreichend große interne Abwertung hinbekommen – oder auch überhaupt keine Abwertung – können nicht gesunden, unabhängig davon wie viel Zeit und Liquidität ihnen gewährt wird.
2. “Wenn alle abwerten kann niemand gewinnen”, “es ist eine Sache der Mathematik “
Ein anderer Kritikpunkt von Avent den aber auch viele andere vorbringen, z. B. Matthew Yglesias. Die Antwort ist: nicht jeder soll abwerten – und nicht jeder wertet ab.
Matt_US hat freundlicher Weise auf das ECB Statistical Yearbook verwiesen, das Daten zu den Lohnstückkosten bis zum zweiten Quartal 2011 enthält (p. 41). Sie zeigen dass mit der bemerkenswerten Ausnahme Italiens alle Krisenländer inzwischen abwerten. Gegen wen? Volkswirtschaften wie Finnland oder Deutschland (ja, Deutschland) die nahe der
Vollbeschäftigung sind und anfangen Lohndruck zu spüren (dies ist tatsächlich nicht so neu – wir beobachteten es bereits 2009).
So soll Anpassung in einer Währungsunion funktionieren – und nur so kann sie funktionieren. Überbewertete Volkswirtschaften werten ab durch Einschnitte bei den Arbeitskosten, um Wettbewerbsfähigkeit und Wachstumsaussichten zu verbessern. Unterbewertete Volkswirtschaften ziehen Kapitalzuflüsse an, welche die heimische Nachfrage stimulieren und Druck auf Löhne und Preise ausüben, was wiederum ihren Wettbewerbsvorteil aufzehrt. Wie Kantoos und ich mehrfach betont haben befand sich Deutschland selbst Anfang der 2000er Jahre in einer schwachen Wettbewerbssituation, was Jahre schmerzhafter Lohnzurückhaltung und Kapitalabflüsse erzwang, während Europas Bankensystem deutsche Ersparnisse in die europäische Peripherie lenkte. Dieser Prozess dreht sich jetzt um.
[P.S.: die europäische Tragödie ist dass die Kapitalflüsse unproduktive Booms in Immobilien (Spanien) oder Staatsausgaben (Griechenland) finanzierte anstatt Investitionen im Sektor für handelbare Güter – dies ist wo der Prozess schief lief. Die Länder, welche jetzt aufwerten, sollten versuchen diesen Fehler nicht zu wiederholen].
Leider ist interne Abwertung ein hartes Brot. Nimm an Portugal ist 20 Prozent überbewertet, ferner nimm an dass es seine gegenwärtige Geschwindigkeit der Anpassung beibehält, also -0.9 Prozent pro Jahr. Wenn die Lohnstückkosten der Eurozone weiterhin mit gerade einmal 0.8 Prozent im Jahr steigen dann wird Portugal 14 Jahre brauchen um seine Wettbewerbsfähigkeit wiederherzustellen. Weder Investoren noch die portugiesische und weitere europäische Öffentlichkeit werden dem Prozess so viel Zeit einräumen.
Aber jetzt nimm an Portugal verdoppelt seine Anstrengungen, während die Lohnstückkosten in der Eurozone mit 2 Prozent im Jahr steigen (anstelle von 0.8 Prozent). Dies reduziert den notwendigen Anpassungszeitraum auf knapp 7 Jahre – immer noch erheblich, aber immerhin vorstellbar. Hier ist kommt die EZB ins Spiel: indem sie etwas mehr Inflation zuließe könnten sie die Anpassung erleichtern, und so die Aussicht auf Funktionsfähigkeit der Eurozone verbessern. Aber die EZB kann die Anpassung nur erleichtern, sie kann sie nicht ersetzen. Solange Italiens Arbeitskosten schneller wachsen als im Durchschnitt der Eurozone wird Italien außer Stande sein seine Wettbewerbsfähigkeit zu gewährleisten, und damit seine Solvenz.
3. “Irland ist anders als Portugal etc.”
Zweifelsohne. Irland hat flexiblere Arbeitsmärkte als die südeuropäischen GIIPS-Staaten (=es ist leichter die Lohnstückkosten zu senken), es ist eine offenere Volkswirtschaft (=ein gegebener Rückgang der Lohnstückkosten bewirkt eine größere Anpassung der Leistungsbilanz), und es hat eine diversifiziertere Exportbasis, mit wichtigen Handelspartnern außerhalb der Eurozone (=es ist weniger anfällig für Eurozonen-spezifische Schocks). D.h. alles in allem ist fällt es Irland leichter sich an die veränderte Lage anzupassen.
Leider heißt dies aber lediglich das Irland besser geeignet ist eine Währungsunion als andere. Es setzt nicht außer Kraft dass die Fähigkeit zur Anpassung eine unabdingbare Voraussetzung für Euro-Mitgliedschaft ist.
[P.S. Paul Krugman hat recht dass Irlands CDS Spread um ca. 50 bps zulegte in den Tagen vor dem Brüssel-Gipfel. Dies macht aber den unterschiedlichen Trend zu Portugal seit Jahresmitte nicht ungeschehen].
4. “All das ist unmenschlich”
Dies ist ein weitverbreiteter, anti-intellektueller Einwand gegen jede Art ökonomischen Denkens (hier eloquent vorgebracht vom Poster Marbleone). Aber in diesem spezifischen Kontext ist durchaus etwas Wahres dran: die ökonomischen Regeln von Währungsunionen sind brutal und rigide. Mit verschiedenen Währungen kann Wettbewerbsfähigkeit durch Wechselkursanpassung hergestellt werden, und überschüssige Staatsschuld kann, zumindest teilweise, weginflationiert werden. Mit einer Einheitswährung tritt Lohnanpassung an die Stelle von Wechselkursanpassung, und fiskalische Austerität ersetzt Inflation (eine Steuer auf Geldhaltung).
Wohl deshalb gibt es wenige (wenn überhaupt irgendwelche) historische Beispiele, in denen heterogene Länder ihre Währungen über einen längeren Zeitraum erfolgreich aneinander gekoppelt hätten. Während des klassischen Goldstandards des 19. Jahrhunderts – oft gepriesen als Musterbeispiel einer funktionierenden Währungsunion - sahen sich Länder außerhalb des Gold“kerns“ (Großbritanniens, U.S., Deutschland, Frankreich) wiederholt gezwungen die Goldbindung aufzugeben und Bankrott zu erklären, insbesondere während der deflationären 1880er und frühen 1890er Jahre. Und selbst in den Kernländer gab es starken Wiederstand gegen die rigiden Beschränkungen der Festwährung; U.S. Präsidentschaftskandidat William Jennings Bryan etwa forderte 1896 in einer berühmten Rede “die Menschheit nicht auf einem Kreuz aus Gold zu opfern”. In den1920ern endete der Versuch die Goldparität wiederherzustellen in einer ökonomischen, finanziellen und politischen Implosion ohne Beispiel. Nach dem zweiten Weltkrieg waren es vor allem Schwellenländer, welche die Gefahren von Fest- und Quasi-Festwechselkurssytemen durchleben mussten. Argentiniens traumatischer Verlust seiner Währungsbindung an den U.S. Dollar 2002 ist ein jüngeres Beispiel, als ein aufwertender Dollar die Argentinische Volkswirtschaft wettbewerbsunfähig machte und alle Versuche untergrub, die Situation mittels Austerität zu kontrollieren.
Aus einer historischen Perspektive betrachtet wäre e seine außergewöhnliche Leistung, wenn die Europäer es schaffen sollten ihre Währungsunion über einen längeren Zeitraum zusammenzuhalten – zumindest in ihrer gegenwärtigen, heterogenen Zusammensetzung. Um eine Chance haben ist die Fähigkeit der Mitgliedsländer zur Anpassung eine unabdingbare Voraussetzung.
@HK
Well done. Incidentally, the unit labor cost developments are mirrored in the development of the GDP deflators (Eurostat) also pointing in the direction of convergence.
Maybe one point that does get little attention: yes, the “North -South” private capital flows have been mainly through the banking channel (primarily the interbank market, later the ECB/Eurosystem). Cross border gvt bond buying is a more complex phenomenon.
It is questionable if the same allocation (savings ultimately invested in unproductive assets) had occurred if (hypothetically) both ends of the flow would have been within a single, transnational bank (eg if Banco Euro had had deposit gathering in Germany and lending in Spain, without a clear “governmental candidate to bail it out” if necessary). Would a bank with such a strategy and an international orphan have been able to survive shareholder scrutiny? Maybe not.
But as it happened, cross border saving flows took the risk-averse road in the form of intransparent domestic bank/insurance savings (with depositors expecting gvt bailout if necessary) channeled through a professional market to risk-agnostic banks abroad financing property developers. The source of the funds *the retail saver especially) would probably not have invested in a transparent money market funds specializing in speculative property loans and the developers would not have paid the price a well managed German bank would have charged (or would never have obtained credit) for that type of financing.
But if differences in productivity were to be bridged (in order to keep the EUR stable) the flows should have been in in the form of equity, preferably via direct investment. And at least local saving should have added to the stock of equity capital invested in private enterprise. Instead Spanish firms were on buying sprees (see for instance Hochtief) and the large, sophisticated Spanish banks expanded in Latin America. German firms invested heavily in China and the former CMEA, while private equity funds (with funding from everywhere but probably little from the risk averse German retail saver) helped German family firms monetize their investment. German bank balances were intermediated to finance projects that did little to enhance Spanish competitiveness or even, productivity.
In other words, the avail;able equity flows went in the “wrong” direction and an important past of the northern savings surplus was intermediated inefficiently. with possibly double moral hazard (the Spanish state to bail out the bank financing the property developer and the German bank depositor to be bailed out by the German state). What were the causes for that imbalance? Lack of cross border bank supervision? Lack of attractiveness for non risk averse investors (equity, corporate bonds?).
It is likely that closing the bank channel will block this type of lending but that does not mean that it will stimulate equity flows. And equity flows determine the K in the growth model, especially when the local business elite has a rent seeker orientation and foreign investment must drive necessary productive capital expenditure while the locals prefer to keep their money abroad. That is what makes Ireland so different from the peripherals. They have no problem with foreign ownership and they know how to make a location attractive for investors: low corporate tax, not too much red tape, low wage rigidity. We are looking at Portugal and Greece through the lens of macroeconomics but we should be using development economics. They do not have supply curves that are undynamic like proper high income countries, their potential GDP can be raised much faster than, eg Germany’s. But no one tried to do that and apparently, few people cared.
Lieber Henry Kaspar,
Ich habe eine Frage: Wäre die Konsequenz aus dem Beispiel mit Portugal nicht, dass Deutschland und der Rest der Eurozone eine interne Abwertung Portugals beschleunigen könnten, wenn höhere Lohnsteigerungen hinnehmen würden?
@ Jay
Das kann ich auch übernehmen. Die Antwort ist: Jein. Denn wenn Deutschland hohe Lohnabschlüsse macht, die Portugiesen aber, nehmen wir mal an, bei Nullrunden festhängen (und nicht tiefer können), dann wird sich die EZB irgendwann genötigt sehen, die Zinsen anzuheben und gegen Inflation zu kämpfen. Genau DESHALB ist es für die Eurozone so wichtig, dass die EZB ein höheres Inflationsziel bekommt. Denn dann wird genau das, was Dir vorschwebt, möglich.
@HK
“the economics of currency unions are brutal and rigid. ”
Brutal, ridgid or even inhuman? Currency unions are not by definition inhuman.
Now, this is my hypothesis: if every country over the last 10 years had had the same inflation rate within the Eurozone, the currency union would have been an overwhelming success. We would not have seen the problems we see now, if Germany’s inflation rate had not been consistently 0,5% under target, and the periphery inflation rates well above target.
The credit growth in the periphery countries would have been a lot less – but the unemployment (in Greece/Spain/Ireland) over the last 10 years a lot higher.
Now control of inflation is the job of the ECB. The ECB did not do its job properly – so now we have to have adjustments. The ECB/IMF/EU want these adjustments to be brutal and rigid – another mistake. They could be – and should happen over a 10 year time frame – and thus create less pain and suffering.
Have another look at the graphs in this kantoos article, which show credit growth and difference of inflation rates which is at the heart of Euroarea’s current problems.
http://kantooseconomics.com/2011/06/08/greece-should-have-had-short-hair-the-whole-time/
@ Matt_US
with identical inflation rates the euro area economies would have been locked in intheir competitive positions of the late 90s – meaning inter alia that Germany would have remained the sick man of Europe.
Some adjustment in a currency union is just an inevitable part of the game – countries get hit by asymmetric shocks or just develop differently. I agree with you though that this process requires surveillance and if necessary policy intervention, if e.g. credit growth is excessive and/or happens in the wrong sectors, where it only pushes demand but does not finance the built-up of production capacity. The ECB cannot do this on its own through monetary policy – Europe needs complimentary macro-prudential regulation, as I wrote in an older post:
http://kantooseconomics.com/2010/12/19/die-eurozone-braucht-weniger-flexibilitat-beim-schuldenmachen-%e2%80%93-aber-mehr-flexibilitat-bei-allem-anderen/
@Matt
“Now, this is my hypothesis: if every country over the last 10 years had had the same inflation rate within the Eurozone, the currency union would have been an overwhelming success. We would not have seen the problems we see now, if Germany’s inflation rate had not been consistently 0,5% under target, and the periphery inflation rates well above target.”
No, it would not, if the incremental capital; endowment during that period had been highly diverse,
The ECB creates the inhumanity by its tight monetary policy. Let say we could force them to target 4% inflation (better would be NGDP level targeting). Even without internal devaluation the periphery could devalue 20% in 5 years. Since inflation in Germany would be higher than the Eurozone average, let say 5%, a 20% devaluation relative to Germany could be done in 4 years.
“But the ECB can only facilitate adjustment, it cannot replace it.”
Since -if the ECB targets enough inflation- there is no need for any internal devalution at all (wages just don’t have to rise), one can argue: the ECB can not only facilitate adjustment, but replace it.
So, any inhumanity is caused primarily by the ECB (aka Germany) and every European should know that.
@ Alex
Well, Henry has a point: if it is not nominal rigidities that is holding the economy back, but REAL rigidities, then the ECB cannot do much in that respect. Buiter always argued that there are more real rigidities than we think. Look at Italy: they are not devaluing at all, it seems. That is real, not nominal.
But I of course agree that the ECB is a major factor in this crisis, and a NGDP target of 5%, level, would be a huge step towards a solution.
Alex F.
Your reasoning is wrong.
It is wrong, because you put the burden of the solution on the shoulders of only one or few participating countries. It is an approach that will not work.
One can demand that the ECB aims at higher inflation which consequently will raise wages in Germany. Be it so, even if this means more inflation than in the Eurozone average leading to competitive disadvantage and higher unemployment.
I would not label such a situation as inhumane or as brutal or rigid.
But even if this approach is not more than a bearable disadvantage for Germany one cannot demand it, if its SOLE reason is to avoid any internal devaluation and other adjustments anywhere else – which is exactly what you suggest.
Why should Germans, Austrians or the Dutch accept a disadvantage, if others keep going on in a crisis perpetuating mode?
They would not have any reason at all to commit themselves in this manner, if their options include leaving or breaking the Eurozone.
In other words the issue is burden sharing and not finding “solutions” on the drawing board that fail for lack of realistic foundations.
“Anti-intellectual claim” may be a tough phrase. In my opinion it is an appropriate one for those who don’t want to accept the unavoidable.
Italy is not devaluing because they have no reason to do so.
During 2000-2007, Italy’s current account deficit was about 2%, and its current net international investment position is about -20% (2009 data). See graph and table, resp., in:
http://krugman.blogs.nytimes.com/2011/10/28/dont-blame-the-krona/
http://www.voxeu.org/index.php?q=node/5008
Their problem, debt-wise, is an excess of *internal* debt. That’s nothing that a progressive readjustment of the tax system towards budgetary balance cannot solve. I suspect their problem is similar to those of France or Germany: regressive tax cuts resulting in a build-up of debt that soaks the resulting build-up of savings through the life insurance market.
Spain and Portugal are different, of course, with -90% and -110% NIIP. Spain’s government debt is not that high — it should probably be let to run a deficit, aided by debt guarantees, to jump-start its economy and let the private sector deleverage. If a few years from now they are in Italy’s position, they’re good.
Of course, all this would go smoother if Germany stopped shipping its production abroad in exchange for IOUs that look increasingly dubious anyway. Inflation is taboo, deficit “verboten”, so maybe a progressive rebalancing of the tax structure could stimulate consumption with beneficial spill-over effects ?
Of course, I have the feeling that none of this is going to happen. If you look at bond prices, markets are pricing in political incompetence.
@Dietmar: The problem with Germany, the Netherlands etc, is that they overshot (what should have been) their target: a trade deficit is a problem, a trade surplus is a problem for someone else. It takes two to tango. If Germany cannot have low unemployment without a trade surplus, then there are other problems that should be addressed. Pushing your problems under your neighbour’s carpet can only work so long.
@ Tischer
my view on this one is that the welfare costs of inflation of 2.5 percent vs. 1.5 percent are minimal, but the welfare gains from a better functioning currency union are large. Thus, it should also be in the interest of the (current) surplus countries to allow for a little more inflation.
In this context, I am certainly not an inflation dove or an advocate of lose money. But it seems clear to me that a heterogenous currency union with little labor mobility – implying that all the burden of adjustment fals on wages – needs a different monetary policy from a relatively homogenous economy like (West-)Germany. The ECB has a different task from the Bundesbank, thus if the ECB tries to be like the Bundesbank it will do a poor job – even though the Bundesbank did a fine job.
Was hätten Irland und Spanien denn tun können, um einer Spekulationsblase vorzubeugen? Wenn sie Immobilienkredite stärker reguliert hätten, wo wäre das ausländische Kapital dann hingeflossen? Waren nachhaltige Investitionsmöglichkeiten in diesen Ländern so reichlich vorhanden, dass ein Zufluss von Kapital nicht unbedingt zu einer Blase hätte führen müssen?
@ Catherine
Gute Frage. Aber es gäbe schon Möglichkeiten, mit nationaler Regulierung Immobilienblasen vorzubeugen, und eine nicht-nachhaltige Inflationsdynamik zu zähmen. Wo das Kapital dann hingeflossen wäre, ist eine schwierige Frage. Vermutlich weniger in diese Länder.
About “anti-intellectual”: when putting forward economic statements that have direct bearing on policy, I don’t think it is anti-intellectual to think about human welfare. The economy is not supposed to be just an elegant system that exists for it own sake. If you cannot improve people’s condition, your intellect is worth zero.
@ To
With anti-intellecutal I mean dismissing economic or other reasoning as somehow inacceptable because one does not like the results. Of course I am all for thinking about human welfare – I reckon this is why most economists are interested in economics in the first place.
@hk
Well, there are certainly a lot of non-arguments flying around, but I daresay the “experts” that see all this as a kind of big math problem (unemployed people stay unemployed because they find it utility-maximizing, etc) are a greater threat right now.
OK, I came, I read, and I am nonplussed on two points
a) “The countries that revalue now should work hard to avoid repeating this mistake” (ie funding “unproductive” ventures). How the heck??? How is anybody supposed to control the direction of investment flows? Rien Huizer suggests shareholder scrutiny. Pardon me if in the wake of the 2008 debacle, I do not find this a reassuring proposal. And as for governement oversight… even border controls on capital flows from a purely quantitative point of view are strictly verboten ever since Maastricht, so a qualitative approach is even more off the book, insn’t it?
b) “with identical inflation rates the euro area economies would have been locked in their competitive positions of the late 90s – meaning inter alia that Germany would have remained the sick man of Europe”. Let me get this straight: Germany devalued, the PIIGS got inflation, and eventually Germany recovered, and -coincidence?- the PIIGS collapsed. For a naive observer (I am one), this looks a lot like a zero-sum game -or even worse: if the comparatively higher cost of labor is a nominal rigidity, then isn’t this a race to the bottom? Or, to put it another way, if the PIIGS devalue enough, won’t Germany fall sick again?
PG
@ PG
legimitate questions that do not necessarily have easy answers. My take is
- the poor competitive position of Germany in the early 2000s was the result of euro introduction itself – with this Germany (and Austria, and the Netherlands) lost its capital cost advantage, and had to compensate for this by lowering wage cost. Conversely, countries with large drops in interest cost where bound to accumulate a capital stock and, in the process, afford higher wages.
- this adjustment process went wrong for at least two reasons. First, the near-complete harmonization of interest rates and therefore the shift in relative capital costs went arguably too far, provoked by things like equal treatment of countries’ paper as collateral with the ECB even though their risk profile was different. Now in crisis interest differentials have widened again, and to the extent that some if this is permanent (I believe it is), it will force a reversal of the previous adjustment process.
- second, and as mentioned above, capital went into the wrong sectors such as real estate and services, where it failed to build up a productive capital stock (with exceptions, such as Ireland until the mid-2000s that built a respectable export industry). Or, as in the case of Greece, it just went straight into government consumption. Accumulating debt without enhancing productive capacity is the prelude to a debt crisis.
- had these things not happened, the process should have produced a convergence of competitive positions rather than divergence in the opposite direction.
- now what can be done about misallocation of capital? The general answer is macro-prudential regulation. As Rien alludes to, booms in the nontradable sector are typically credit financed, built-up of capacity in the tradable sector equity financed. Thus the key task is to keep credit growth under control, which can be done through things like counter-capital and provisioning rules and variable minimum reserve requirements. I would give this task to the currently underemployed national central banks, but with a coordination and supervision function of the ECB that has foot the bill for regulatory mistakes after all.
I know the general principle is easily sketched while implementation is diffuclt. But this is one key area that in European policymakers should focus on with some urgency, together with creating a functioning crisis resolution mechanism and enforceable fiscal rules. Only with these things in place is the archtiecture of the euro area reasonably complete.
@ PG
You wrote:
“How is anybody supposed to control the direction of investment flows? Rien Huizer suggests shareholder scrutiny. Pardon me if in the wake of the 2008 debacle, I do not find this a reassuring proposal.”
Maybe what I wrote was not very clear. I tried to contrast the actual situation anno 2008 (completely separate banks at each end of the capital flow, each relying on a bailout by its own government in the (in their opinion) unlikely event that creditors could not be repaid. The classical moral hazard case (the governments write free options to the creditors of local banks, which allows them to adopt unsafe business practices, only constrained by (deficient) regulation) as you see. The situation I tried to contrast it with was a hypothetical single cross border bank doing both ends of the transaction. My contention is that such a bank’s internal processes (especially in the absence of a clear bail-out possibility offered by a single government, not the posibility of two gvts tossing a hot potato to each other) would not have allowed for such risky real estate lending as the Cajas apparently did in Spain, which forced the gvt to bail them out (or rather, bail out their creditors). In my hypothetical case the shareholders and creditors are more likely to oppose risky business practices as there is less hope for gvt largesse.
Of course such a bank would have been uncompetitive in the property lending business in Spain, and local banks would have picked up the trade, but that is besides the point.
However, it shows that (1) the “consolidation” of the European banking sector after the introduction of the “single market” in financial servives in the 1990s has resulted in almost exclusively national consolidations (i.e. fewer, bigger banks per country, rather than a version of the US “interstate model” that led to geographically diversified giants like BoA, JPM and Wells Fargo. There have been no cross border mergers between top three banks in large EU countries (type Commerz with SocGen), No one has a market share approaching 10% of the EUR area, but all countries (except Germany, with its large public sector system) at least one national champion with 15%. The only examples of large cross border situations are Unicredito’s acquisition of the then troubled HBV and BNP’s acquisition of the Belgian business of the insolvent Fortis group, making it the second largest bank in Belgium. Dexia was a different case.
(2) without that consolidation the EUR zone banking system failed to develop the characteristics of something that could have made the EUR less “brittle”. Banks did not benefit from geographical diversification of portfolios and national economies did not benefit from international best practices in lending that could have led to more efficient allocation of capital and less irrational competition in financial services (irrational competition in banking usually leading to avoidable bank insolvency). I suspect that that is exactly what local elites wanted. No politician likes to be in the situation of Belgium, where 60% of the national banking industry is foreign owned, which means that the largest customers get their credit lines approved on the basis of more or less rational analysis in a foreign country , rather than through local cronyism. As a result, large EU banks typically sought expansion outside the EUR area, exactly the opposite of what the EUR area should have stimulated.
That would not have meant that the “control over investment flows” as you call it would have been so different that there would have been a lot less gvt/bank cross border financing and much more cross border equity, but it would certainly have contributed to crowding out the funding for the most irresponsible developments, because there would have been less of an interbank market and more convergence in supervision. One important factor in that would have been the degree to which these giants (say at 4 times BNP and with at least 50 million customers) would have been dependent on a single government for catastrophe support. No single gvt would have been able to do so and hence this would have forced Community-level supervision and Community level catastrophe procedures. The sort of stuff we lack today. Maybe the biggest policy mistake made by the individual EUR zone gvts has been the protection against cross border M&A of “national champions.
Incidentally, the 2008 debacle (I assume you mean the GFC and especially the sub-prime crisis) did not at all result from weak shareholder scrutiny in COMMERCIAL banks. Lehman and Bear Stearns were INVESTMENT banks and AIG is an insurance company. But large US commercial banks would not have internalized the chain (Caja in Spain making unsound loans and , say Sparkasse Koeln lending to the Caja in the interbank market). Because that would not be a business model they wanted to show to their shareholders. Instead, their retail mortgage business was and had been for at least a decade: “originate to sell”. Every zero sum game (and this is one) needs a dummy to attract smart players, and in the GFC the dummies were the investors. Not the bank shareholders in general and I doubt the bank managers (again in general) were acting against their private shareholders’ interests (as the Cajas were doing against their state shareholders).
But I guess that is not what you understood by shareholder scrutiny.
Einen schönen Artikel u.a. zum Default von Staaten hab ich vor kurzem bei meiner
Econblog-Hero-Woman Yves Smith (naked capitalism) aufgegabelt:
The Verboten Story of Argentina’s Post-Default Economic Success
http://www.nakedcapitalism.com/2011/10/the-verboten-story-of-argentinas-economic-success.html
lautet die Story, die zumindest an einem Beispiel mit dem Mythos katastrophaler Folggn eines Defaults und eines haircuts aufräumt.
In einer längeren und – wie ich finde sehr plausiblen – Studie wird ausführlich beleuchtet, wie es Argentinien nach dem haircut erging.
Das Ergebis lautet gar nicht so negativ.
Gläubiger und andere “Gecuttete” sehen das naturgemäß evtl. etwas anders, aber such is life.
meine Lieblingszitate:
“Notice the Argentinian example disproves one of the Big Lie about default,
that foreign capital will take a hike and the consequences will be dire”
and
“Shorter version: sacrificing your economy on the altar of the Bond Gods may not be such a good idea.”
and
“No wonder the IMF and the banksters don’t want Argentina to get good press.
The Eurozone countries they are wringing dry might get ideas.”
die ausführliche Studie -auf die sich Yves Smith bezieht –
findet sich unter (lesenswert und ganz aktuell 10/2011 !):
The Argentine Success Story and its Implications
Mark Weisbrot, Rebecca Ray , Juan Montecino and Sara Kozameh
Center for Economic and Policy Research, in Washington D.C.
http://www.cepr.net/documents/publications/argentina-success-2011-10.pdf
auch mit einigen interessanten Bemerkungen zum Panik-Thema Inflation, z.B.:
“Inflation may be too high in Argentina, but it is real growth and income distribution that matter with
regard to the well-being of the vast majority of the population. By these measures, as we have seen
above, the government appears to have made the correct decision not to fight inflation by sacrificing
economic growth. . To take one important historical example, South Korea registered annual rates
of inflation similar to those of Argentina in recent years, in the 1970s and early 80s, while it
traversed the journey from a poor to a high income country.”
discuss *popcorn für alle* ;-)
@TeraEuro
Argentinien hat nach dem Default natuerlich auch viel Glueck gehabt (commodities’ boom, der in Oelgeld schwimmende Chavez als Lender of last Resort). Und ganz generell wuerde ich bei der Gruppe, die Smith da zitiert, vorsichtig sein, bei der kommt der politische Wunsch meist vor der Analyse (den Inflations- und Wachstumszahlen der Kirchner-Regierung z.B. ist nicht zu trauen).
Aber grundsaetzlich stimme ich Smith zu, es gibt ein Leben nach Abwertung und Default, insbesondere wenn jener Schuldennachhaltigkeit und Wettbewerbsfaehigkeit wiederherstellt, und durch Kreieren eines externen Ueberschusses die Abhaengigkeit von auslaendischer Finanzierung reduzuert. Ich schreib dazu hier vor ein paar Monaten einen Artikel, “Henrik Muellers verquere Schreckensszenarien”.
http://kantooseconomics.com/2011/09/26/henrik-mullers-verquere-schreckensszenarien/
@TeraEuro
Ich wuerde mich auch mal ganu informieren, wie die Argentinier die Krise 2001 empfanden. Besonders die, die in den Muellhalden nach etwas Essbaren suchen mussten, um nicht zu verhungern, oder die, die jetzt immer noch mit Eselskarren dur Buenos Aires fahren, um da das Altpapier aufzusammeln, um so ihre Familie ueber die Runden zu bringen.
Wogegen natuerlich die argentinische Finanzelite schon immer ihr Geld ins Ausland gebracht hatte, und sich nicht drum sorgen mussten, ob sie ihr Pferde nach GB zum Polotunier flegen konnten. Komm bitte nicht mit den korrupten Suedamerikanischen Laendern hier als Beispiel. (Ausser, um die Korruption vielleicht mit Europa zu vergleichen) denn diese Laender haben schon immer lieber Geld gedruckt, anstatt ihre Eliten zu besteuern. Deshalb gibt es da 30% Inflation. Soll das jetzt ein Vorbild sein?
Und wenn man immer noch den alten Waehrungen nachhaengen sollten, schaut mal genau hin, ob Griechenland durch Abwerten (also in der Zeit vor dem Euro) wettbewerbsfaehiger wurde, oder ob das nur die hoeher Inflation ausglich. Denn es wurde staendig abgewertet, und nie wurde Griechenland wettbewerbsfaehiger. Das ist einfach nur Theorie, die in der Praxis nicht funktioniert. Wettbewerbswfahiger werden Laender nur, wenn sie gewollt in irgendwelche hochwertigen Produkte investieren.
@Matt
You are absolutely right that shifting Greece’s exchange rate regime (by reintroducing the Drachma and floating it) will not (by itself) make it grow faster. In fact in the academic literature (see Andrew Rose in the September issue of the Journal of Economic Literature) there is very little that would attribute strong effects on longer term macro variables of specific FX regimes. That however ignores that the EUR is for its member states (1) more than a national currency pegged to a another and (2) in terms of monetary policy choices, less than a pegged currency.
The “more related to potentially very large supply side effects of combining a customs union, an institutional union (all those rules about products, standards, etc) with a single market in financial services and a single, shared currency. All of that should improve factor mobility and permit larger scale for firms and production units. But that is a process that may produce very large groups of losers, despite aggregate gains
The “less” is related to the constraints placed on national governments in terms of fiscal and monetary policy, essentially neutering any form of ideologically (or cynically) inspired independent policy.
In this respect the pictures of what is going on in Greece present a phenomenal illustration of whet the EUR integration project can do: a country with a tortured democratic history, “un-western” corruption ranking, a very low stock of productive capital (forget the shipping, that is offshore for all practical purposes), would be a natural loser in the integration game, while its government would lack the instruments to conduct corrective policy (there are no mechanisms to compensate the losers in the EUR, except the “self-service” practiced by Greece so far). So, whether in or outside the EUR, Greece with its current endowments and institutions, Greece would have had problems: likely initial losses from integration if within, likely problems to “compete” with successful EUR integrators (type Estonia) given endowments.
@matt
Hier kann ich Dir nur voll zustimmen, mit Abwertung alleine “drückt” man sich vor eine Strukturreform (oder auch “in hochwertige Produke investieren”, wie Du schreibst). Stattdessen fährt man den alten Kurs einfach weiter und lässt es den Bürger bezahlen. Auf diesem Wege wird man kein Stück innovativer, sondern muss einfach immer und immer wieder abwerten, weil man ja nicht “wettbewerbsfähig” ist.
Mir fehlt bei dieser “Abwertungsstrategie” einfach der Weg aus dem Teufelskreis.
Sorry, this contribution was posted on another thread. I copy it where it belongs to.
@ To
Please notice that my argument against Alex F. does not imply or rest on “pushing your problems under your neighbor’s carpet.” On the contrary, it does accept problems for Germany to help other countries solve their problems – but under a condition that Alex F. omits: that these other countries are WILLING to adjust, even if this means hardship for them. With view to the argumentation I just wanted to indicate: Though one is free to start from any premise whatever to arrive at a preferred conclusion (here: no hardship), not every freely chosen premise is an acceptable one.
>a trade deficit is a problem, a trade surplus is a problem for someone else>
I am aware of this and I’ll deal with it not in terms of economics – H. K. has done this better than I ever could – but with an argument that can be conceived as underlying economic arguments.
The claim is correct, but very often a wrong conclusion is drawn. It is wrong to demand that the country having a trade surplus should eliminate it by UNILATERAL measures just because it has – supposedly – created a problem for someone else. It is rather the country with a trade deficit that should try to solve this (his) problem, i.e. to reduce its deficit, if helpful with sensible support of the ECB. The surplus country should not oppose this process but support it too, if it is in a currency union with the other country.
So far this is only a conviction. Here is the reason why I adhere to it:
In capitalism an agent has the freedom to shape his fate within the options available. Accepting this realm of action he has to care for the consequences too and not let others fix resulting problems, even though others have co-shaped the conditions of action. This is a consistent principle. The undeniable experience that it leads to imbalances again and again does not undermine its validity.
To clarify what this ultimately means, I like to offer the following analogy:
Let us fly over a country or a region like Europe and look upon the landscape. It is an observation from the perspective of a bird. We see valleys inhabited by people who suffer. On the hills we see people who do well. In order to end the suffering we decide to level the landscape: no valleys, no people who suffer.
Fine or is there something wrong with this solution?
At first glance one may conclude that this solution does not take care of the interests of the on the hill-people. This is true and one can argue about it. My point is a different one and, as I believe, the one that is far more important: In capitalism such a perspective does NOT EXIST and thus the decision or any other ones being based on such a perspective have no foundation WITHIN the system. If the landscape is to be changed or even be leveled, this ought to be decided by the people in the valleys and on the hills, i. e. by decisions from their perspectives ONLY. Their perspectives remain their perspectives, even if governments act on their behalf.
You write:
>Italy is not devaluing because they have no reason to do so.>
This could be the case. P. Krugman believes that Italy needs only a “modest further fiscal adjustment”. His view is in accordance with yours, i.e. “readjustment of the tax system”, though it is an open question whether he had the same measures in mind.
I believe that Italy has to improve its growth rate in order to avoid increasing difficulties. This may require not only fiscal adjustments or a readjustment of the tax system but also structural reforms.
However, at the present we experience growing capital outflows from Italy. Here is the link, if you are interested to learn more about it:
http://www.cesifo-group.de/portal/page/portal/ifoHome/B-politik/10echomitarb/_echomitarb?item_link=ifostimme-ps-25-10-11.htm
It would be very discouraging for the Eurozone, if capital outflows continue, because they are an indicator that people don’t trust their own government and the financial institutions of the country. If so, why should others, f. i. foreign government bond holders, trust Italy?
@ H. K.
I never believed that you are an inflation dove. If I remember correctly, you and I were about the only posters who defended the ECB rate raise in July 2008 at the ZEIT blog. Your view on inflation and welfare cost is totally acceptable to me.
Just the following remarks:
For a number of reasons Germans have a deeply seated aversion against inflation, which may even be called obsession. The fine job of the Bundesbank is just one of the reasons. I dare to say that all operations “saving the Eurozone” would be dead at once, if allowing inflation became an official topic in or for Germany. Of course this is not an economic argument. If we talk about the Eurozone we don’t talk about Germany only and therefore other considerations come into play, f. i. welfare cost and benefits for all countries in the currency union.
As far as the ECB is concerned, it is not easy to evaluate the job it does or will do. My position:
Even if one would hold the view that ECB policy will achieve the contrary of what it intends most of the time, it is quite clear to me that its effects are based on its credibility. For me this is even true, if the credibility rests on a false understanding of the ECBs acting principles or on false expectations with regard to the effect of its measures.
It is obvious that since the beginning 2010 – for the first time heavy government bond buying in the secondary market to avoid a liquidity crisis – the ECB lost a lot of credibility among those it has to address including a great number of experts. In my opinion its loss of credibility is not justified. For I strongly believe that the ECB was force by politics to act against its convictions of what its job is and not is. Insofar, incidentally, I believe there would not be the slightest disagreement between Trichet and Weber. However, it does not matter whether the loss of credibility is justified or not. What matters is that it is conceived as a loss.
Thus, originating from the self-understanding of the ECB it has to regain credibility.
This aspect must be taken into account, if one judges whether the ECB does a poor job or a good one. To be sure, there are still strong economic considerations but they are not the only ones to be applied when judging about ECB politics.
@Rien
“All of that should improve factor mobility and permit larger scale for firms and production units. But that is a process that may produce very large groups of losers, despite aggregate gains”
I think the concentration process happens, but that happens independently, whether there is a currency union or not. If that is a problem in the EU or the Eurozone (I think it is) then is the job of politicians to split up large market dominating companies, even if they are only dominant in one local market.
“Greece with its current endowments and institutions, Greece would have had problems: likely initial losses from integration if within, likely problems to „compete“ with successful EUR integrators (type Estonia) given endowments.”
Well, again, these problems are problems within or outside a currency union. Arguably, if Greece had not had a high inflation rate which made the tourism sector relatively unattractive and expensive, Greece could really benefit from its nice weather, superb beaches, ancient ruins, and phantastic islands. Millions come to Greece to experience that each year, and many more millions would come if it were cheaper.
True, Greece does not have a Volkswagen factory, like Wolfburg, but not many people come to Wolfsburg on holiday! Successful countries do not have to build cars or export traded goods.Look at Austria. Superb gains in wealth in the last 50 years, just on the back of tourism, especially in the Alpine valleys.
So that is what I meant earlier when I said, the ECB’s job was to insure that inflation is equal in all EU countries, not almost 4% in Greece on average, and less than 1% in Germany. Because that would have made a Greek holiday now 20% cheaper than it is now. In fact all Greek products would have been cheaper by 20%, and more in demand. And it would have avoided, to a large extent, all the costly problems we have now.
@ Matt_US
So that is what I meant earlier when I said, the ECB’s job was to insure that inflation is equal in all EU countries, not almost 4% in Greece on average, and less than 1% in Germany.
Rien hat schon weiter oben erklaert warum das oekonomisch keinen Sinn macht (die Fed sichert aus gutem Grund auch nicht gleiche Inflationsraten im boomenden Texas und im darbenden West-Virginia, und niemand kaeme auf die Idee das zu fordern. Und auch die Bundesbank sicherte nicht gleiche Inflationsraten in Husum und in Muenchen, bzw. gleiche Preise beim Tante Emma Laden in Unterbichl und beim Grossmarkt in Hamburg).
Aber nehmen wir mal fuer einen Moment an der Satz machte Sinn – wie genau soll die EZB das gewaehrleisten?
@HK
“Aber nehmen wir mal fuer einen Moment an der Satz machte Sinn – wie genau soll die EZB das gewaehrleisten?”
Die EZB koennte, wenn sie wollte, zum Beispiel Geldfluesse die zur Kreditfinanzierung (z.B. in Griechenland) dienen, und die aus dem EU Ausland (z.B. aus Deutschland) kommen, mit einer Steuer belegen. Geld was als Direktinvestion von D nach Gr transferiert wird, um z.B. eine Fabrik zu bauen, waere davon ausgenommen.
Und die Notenbank in den USA koennte auch verschiedene Zinsen (oder eine Art Steuer) einfordern fuer Kredite die in Texas vergeben werden, aber nicht fuer Kredite die in West Virginia vergeben werden. Wenn sie wollte. Wenn das eine lokale Immobilienblase in Texas eindaemmt, und die Wirtschaft in West Virginia wettbewerbsfaehiger macht, ist es sogar sehr vernuenftig.
Ich sehe hier nicht viel Unterschied, zu dem was Du oben vorgeschlagen hast. Intelligentere Geldpolitik, halt:
“The general answer is macro-prudential regulation. As Rien alludes to, booms in the nontradable sector are typically credit financed, built-up of capacity in the tradable sector equity financed. Thus the key task is to keep credit growth under control, which can be done through things like counter-capital and provisioning rules and variable minimum reserve requirements.”
Man sollte vielleicht noch dazusagen, dass es durchaus produktive Investitionen gibt, die durch Kredite finanziert werden koennen. Die sollten natuerlich erlaubt werden.
Also, Notenbanken, ob EZB oder nationale Notenbanken sollten ihren Banken Vorgaben machen, zu welchen Zwecken sie Kredite herausgeben. Das waere mal vernuenftige Geldpolitik.
@ Matt_US
Der Unterschied ist dass Du Inflationsraten harmonisieren willst, was ich nicht nur fuer zwecklos sondern auch kontraproduktiv halte – Laender muessen sich in einer Waehrungsunion immer wieder an veraenderte Gegebenheiten anpassen, und man darf ihnen die Instrumente dafuer nicht nehmen. Ich will lediglich verhindern das die Anpassung in falsche Bahnen laeuft. Wie die vergangenen Jahre gezeigt haben ist das Risiko gross vor allem bei unterbewerteten Laendern die Kapitalzufluesse anziehen – die Gefahr ist dass jene insbesondere Staatskonsum oder Boom-Bust Cycles im Immobiliensektor finanzieren.
@ Matt,
“I think the concentration process happens, but that happens independently, whether there is a currency union or not. If that is a problem in the EU or the Eurozone (I think it is) then is the job of politicians to split up large market dominating companies, even if they are only dominant in one local market.”
The consolidation process would (theoretically at least) be different in a world with more friction. The benefit of the customs union, regulatory harmonisation, single market for finance and currency union -in combination- is to create a quasi domestic economy os much larger size than the individual countries. The main drawback in the EU has been a lack factor mobility, caused by language barriers etc. I am certainly not advocating breaking up large successful firms, on the contrary. Unless they would be inefficient/rentseeking. My concern is that that process has not taken place, which now results in patterns of national specialisation that do not show the positive effects of greater productivity made possible by lower friction.
And:
“Well, again, these problems are problems within or outside a currency union. Arguably, if Greece had not had a high inflation rate which made the tourism sector relatively unattractive and expensive”
That is a statement that suggests that all would be well in the EU if, say, Greek wages had not grown that much. Greek wages on average are still not very high high, and there is an abundance of immigrants in Greece who appear to work for much less. And taking Greece’s tourist sector as an example: the tourism labor cost in Greece may not be an obstacle to the exploitation of Greece’s endowment of touristic locations. It may be in comparison with Turkey, but certainly not with Italy, Spain and Portugal. There may be differences in the managerial quality, supporting infrastructure and logistics that influence Greece’s competitiveness. Why are holidays in Greece expensive? That question (as your reference to Austria suggets) is probably only partially answered by reference to raw labor cost.
The key point about EU integration is that if it would be done properly, wages could be relatively high (or social programs relatively generous, etc) because of productivity gains resulting from removing frictions caused by the small scale of EU markets prior to integration, wherever local elites would allow those gains to be introduced. If firms in Greece had caught up with, say firms in Austria in terms of stock of human and physical capital and found profitable niches not available to to firms in Austria they might have been able to offer better conditions to private sector workers and the public sector had not expanded so fast (rather made it more efficient and reduce public sector employment to at least average EU levels), this crisis might not have happened. In the absence of Greek firms doing this (the most efficient Greek firms appear to be in shipping, and they are almost completely offshore (no tax revenue, little domestic spending, foreign crews, ships built overseas) and contribute little to the Greek domestic economy), conditions for foreign investment should have been made very attractive by the gvt (as Ireland has done) and then foreigners would have made the investments to raise the stock of private sector capital and with it, productivity. Instead the gvt chose to expand the public sector, exactly the opposite of what was needed. There is nothing inherently wrong with big firms, as long as they are not so dominating that they can afford to be inefficient without being eliminated.
@HK
“Wie die vergangenen Jahre gezeigt haben ist das Risiko gross vor allem bei unterbewerteten Laendern die Kapitalzufluesse anziehen – die Gefahr ist dass jene insbesondere Staatskonsum oder Boom-Bust Cycles im Immobiliensektor finanzieren.”
Das ist nateurlcih das Ziel, auch wenn man fuer jedes Land in der Eurozone eine Inflationsrate von 2% anstrebt. So etwas haette in D die Zinsen unten gehalten, von 2000 bis 2008, In Griechenland allerdings die Zinsen erhoeht. D waere mehr gewachsen, Gr weniger.
Jetzt, sollte in D die Inflation ueber 3% steigen, und in Griechenland laneger Zeit unter 1% fallen, muessen Zinsen in Gr runter und hoch in D. Das wuerde immer noch eine Anpassung moeglich machen, sogar leichter machen.
Well, I haven’t just said that “all this is inhumane” though humanity was indeed one word in my longer post. Anyways, now that I read about “inbuild brutality and rigidity” I’d indeed say: Geez, this _is_ inhumane. And I’d like to add that when you’re saying that “there is no alternative but devaluation, take that truth” I’d answer that rather this TINA-stance sounds anti-intellectual because mostly there are alternatives. Furthermore, devaluation/austerity almost always makes education in a country worse.
Isn’t that anti-intellectual, too? And given all the human suffering associated with devaluation/austerity then you must be perfectly sure that there really is no alternative because else all less painful alternatives (enforcing growth, reducing surpluses, launching stimuli, printing money etc.) should be imperatively tried first – for the sake of humanity and solidarity. However, we haven’t seen any of these, none have even been tried.
But, sadly enough, since we already can’t agree on what anti-intellectualism is it’s unlikely that we will reach consensus on this. It is somewhat funny and sad as well that devaluation/austerity is almost always accompanied by a political rhetoric of moralism but those who call that brutality by it’s inhumane name simply get the anti-intellectualism-badge attached.
@ Marbleone
Well, I haven’t just said that “all this is inhumane” though humanity was indeed one word in my longer post. Anyways, now that I read about “inbuild brutality and rigidity” I’d indeed say: Geez, this _is_ inhumane. And I’d like to add that when you’re saying that “there is no alternative but devaluation, take that truth” I’d answer that rather this TINA-stance sounds anti-intellectual because mostly there are alternatives.
Let’s see.
Furthermore, devaluation/austerity almost always makes education in a country worse.
Sure, but how does this invalidate the need to devalue internally if a country finds itself in an uncompetitive position within a currency union?
Your sentence is like stating “gravity can kill people, doesn’t this suggest gravity is wrong?”
Isn’t that anti-intellectual, too? And given all the human suffering associated with devaluation/austerity then you must be perfectly sure that there really is no alternative because else all less painful alternatives (enforcing growth, reducing surpluses, launching stimuli, printing money etc.) should be imperatively tried first – for the sake of humanity and solidarity. However, we haven’t seen any of these, none have even been tried.
Enforcing growth: how?
Reducing surpluses: what surpluses?
Launching stimuli: revalues rather than devalues, thus worsens the competitiveness problem – and by increasing public debt also worsens the debt sustainability problem
Printing money: how when you are in a currency union, i.e. you don’t sipose over your own money?
The economic policy lesson from this is: if you want to keep these policy instruments at your disposal, don’t enter into a currency union where they don’t exist anymore.
But, sadly enough, since we already can’t agree on what anti-intellectualism is it’s unlikely that we will reach consensus on this. It is somewhat funny and sad as well that devaluation/austerity is almost always accompanied by a political rhetoric of moralism but those who call that brutality by it’s inhumane name simply get the anti-intellectualism-badge attached.
I agree with you that a rhetoric of moralism does not help, but dreaming up policy “solutions” that are simply not available in a currency union does not help either. I share your view that procylical internal adjustment is tough and can be inhumane (it certainly is in the case of Greece); but again, the logical conclusion from there is: if you want to steer free from this, keep your own currency, thus preserve the ability to deavlue through the exchange rate and, if needed, to inflate your debt away.
@ Marbleone
We should not mix up different issues, even if they belong together.
Everybody with a minimum of sensibility for the living conditions of human beings in civilized societies will agree that there is hardship and suffering, if things change as they do as f. i. in Greece. One may call the SITUATION inhuman.
The question we are dealing with addresses a different issue:
How can one get from an unsustainable situation to a stable one at the best interest of all people involved within a currency union?
In the context of this question the phrase “anti-intellectual” does not stand for any judgments about the situation of the people involved.
It refers to the insight that, if one wants to achieve the above goal, the economic requirements CANNOT BE DERIVED from suffering or inhumanity. Of course, measures according to economic requirements must take suffering and inhumanity into account. It is valid and necessary to point to this, but it cannot replace economic reasoning.
>>Überbewertete Volkswirtschaften werten ab durch Einschnitte bei den Arbeitskosten, um Wettbewerbsfähigkeit und Wachstumsaussichten zu verbessern. Unterbewertete Volkswirtschaften ziehen Kapitalzuflüsse an, welche die heimische Nachfrage stimulieren und Druck auf Löhne und Preise ausüben, was wiederum ihren Wettbewerbsvorteil aufzehrt.<<
Tja – wir können gerne Löhne senken. Aber was denn produzieren? Die nicht mehr benötigten Autos? Oder vielleicht lieber Flugzeuge? Wie gut sind denn die Leute ausgebildet um Waren herstellen und exportieren zu können? Oder sollte man in Konkurrenz zu China treten?
Und: wird die Welt überhaupt noch soviel konsumieren können? Ich sehe in Portugal, Spanien und Griechenland keine große Chancen die Bevölkerung wieder in Lohn und Butter zu bekommen. Geschweige denn die Schulden zu tilgen.
Ich denke, Deutschland und Europa sollte sich mal parallel zu den Beruhigungsmaßnahmen der "Märkte" überlegen was es wirklich will. Wie soll Europa in 50 Jahren aussehen? Den Lebensstandard werden wir so oder so nicht halten können. Es gibt so viele grundlegende Fragen die in den letzten zehn Jahren meines Erachtens gar nicht gestellt wurden.
Zum Thema:
Warum nicht gleich ein Schuldenschnitt von 70% für alle? Dann sind eben auch die Guthaben (und Renten, Lebensversicherungen etc) weg. Aber teuer wird es so und so. Ein paar Banken kann man ja retten. Alle brauchen wir soundso nicht.
Das “man kann ja nicht in konkurrenz zu China treten” war auch beliebt mit in Bezug auf Deutschland in den fruehen 2000er Jahren – und heute, nur wenige Jahre spaeter, beschweren sich genau die gleichen Leute darueber dass Deutschland mit seiner exzessiven Wettbewerbsafehigkeit alles platt mache.
Ansonsten kann ich nur kommentieren dass ich die Dinge weniger pessimistisch sehe. Es gibt keinen Fall von “Land X hat es nie mehr geschafft die Leute wieder in Brot und Butter zu bekommen”, sobald die unterliegende Krisenursache aufgeloest war. Und aufloesen wird sich die Krise, die Frage ist nur wie.
alle diese “Diskussionspunkte” sind meiner Meinung nach nur Luftblasen über Spitzfindigkeiten. Im Grundsätzlichen haben sowohl kantoos wie hkaspar (warum eigentlich die Pseudonyme?) einfach falsch gelegen.
Die Zeit die notwendig wäre um die notwendigen Angleichungen innerhalb des Euroraums vorzunehmen gab es nicht und inzwischen sollte jedem klar geworden sein, dass es sie inzwischen erst recht nicht mehr gibt. Fast niemand wollte jahrelang abwarten, ob ein Land (Griechenland, Portugal, Irland) evtl. die Kurve kriegt und hat seine Anleihen lieber verkauft. Nun sieht es so aus als wäre Italien das jeweilige Land bei dem das passiert. Da hier glaube ich Einigkeit besteht, dass niemand außer der EZB (sicher nicht der EFSF) diese Verkäufe “aufsaugen” kann, um Zinsen zu verhindern die die sichere Pleite bedeuten, sind Überlegungen über Solvenz/Liquidität oder interne Abwertung/Inflation einfach praktisch nicht mehr relevant. Entweder handelt die EZB sehr bald ersthaft oder ich gebe dem Euro as-is sonst keine 50% Chance mehr.
@ Michael
der Kommentar laesst mich eher ratlos, denn er ignoriert souveraen und makellos argumentfrei alle Daten und oekonomischen Grundzusammenhaenge, die Kantoos und ich in den letzten Tagen versucht haben zu praesentieren.
Richtig ist: der Euro hat dann keine Chance wenn die EZB “handelt”, die davon profitierenden Laender die Kurve aber trotzdem nicht kriegen. Im Gegenteil, dann geht nicht nur die Staatschuld dieser Laender drauf, sondern auch noch die Euro-Zentralbank.
Genau deshalb muss Liquidtaetshilfe an bindende Gegenleistungen gebunden sein. Es hilft nichts einen Ertrinkenden an Land zu ziehen der dann wieder ins Wasser springt, ohne schwimmen gelernt zu haben.
Was Italien angeht: mich wundert wie Leute auf eine Liquidtaets- statt Solvenzkrise schliessen koennen angesichts Riskospreads Italiens – und nur Italiens – die durch die Decke gehen, waehrend zeitgleich die italienische Regierung nichts unversucht laesst um die Welt von ihrer Handlungsunfaehigkeit zu ueberzeugen.
Vielleicht lueftet sich da Raetsel ja noch irgendwann; auf Ihren Beitrag dazu waere ich neugierig.
Das Problem ist doch, wer soll das kontrollieren, ein EZB-Rat, in dem die Empfänger die Mehrheit haben? Im Prinzip finde ich die Idee mit dem bedingten Bondkauf richtig, aber nicht, wenn da eine Mehrheit von Empfängern sich selbst Geld drucken darf, dass sie dann in den “Geberländern” ausgeben darf. Wenn schon, dann brauchen wir da Gremien, in denen die Nichtempfänger eindeutig das Sagen haben.
@ Erich
Sehe ich aehnlich. Das richtige Modell waere mAn ein EFSF mit einer Banklizenz gewesen, der unbegrenzt nur bis zu einem bestimmten Zeitraum interveninere kann (z.B. 3 Monate), und dann gegen auf den Fall zugeschnittene Bedingungen. Am besten waere beim bedingten Intervenieren den IWF mit an Bord zu haben (bei dem die Europaer insgesamt keine Mehrheit haben).
@HK
“Das richtige Modell waere mAn ein EFSF mit einer Banklizenz gewesen, der unbegrenzt nur bis zu einem bestimmten Zeitraum interveninere kann (z.B. 3 Monate), und dann gegen auf den Fall zugeschnittene Bedingungen.”
Das Problem mit solchen oekonomisch vernuneftigen Vorschlaegen, ist dass sobald was begrenzt ist, zu bestimmten Bedigungen, will der Markt sofort wiessen, wo denn die Grenzen sind, damit man dagegen spekulieren kann. Mirt einem drei Monats Zeitraum kommt man auch ueberhaupt nciht weiter – drei Jahre waeren schon besser. Also man koennte sich einigen, dass man hilft, aber nur gegen Bedingungen, die oeffenltich nachvollziehbar sind. Das heisst einfach sich an die Maastricht Kriterien zu halten, oder langsam darauf zuzuarbeiten.
Das geht nur durch Besteuerung der hoechsten Einkommen und Vermoegensklassen, meine ich, aber ich lasse mich gerne ueberraschen, wenn einer eine bessere Geldquelle finden sollte um Staatschulden und Defizite zurueckzufahren.
@ Matt_US
Du misverstehtst den Vorschlag. Es sollen nicht die Liquidtaetshilfen auf 3 Monate begrenzt werden, sondern nach spaetestens 3 Monaten sollen die Bedingungen ausgehandelt sein, die einzuhalten sich die Regierung des von der Intervention profitierenden Landes verpflichtet. Wobei 3 Monate zu lang ist, on second thoughts muss ein Monat reichen. So funktioneren IWF Programme seit Jahr und Tag.
Jetzt endlich erfährt man mehr über die Rettung der US-Banken durch die FED – und damit zugleich über Vorschlag im Bezugsposting (http://www.economist.com/blogs/freeexchange/2011/10/euro-crisis-0#comment-1149553) des Economist-Bloggers Ryan Avent
“Convince markets that solvency is irrelevant, and you allow the damaged institutions time to muddle their way back to health.”
Nämlich in dem (in unseren Medien anscheinend unbeachtet gebliebenen?) Bloomberg-Artikel “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress*” vom 28.11.11 (http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html).
Ich will nicht behaupten, dass ich sämtliche Details des Textes verstanden habe; auf jeden Fall wird deutlich, dass diese Rettungsaktivitäten der FED Verzerrungen in mindestens 3 Richtungen bewirkt haben:
1) Politisch, indem sie (bzw. die Tatsache, dass sie vor der Öffentlichkeit und den Politikern geheim gehalten worden waren) Bemühungen von US-Abgeordneten zur Zerschlagung der “too-big-to-fail”-Banken unterminiert haben (“Lobbyists for the big banks made the winning case that forcing them to break up was “punishing success,” Brown says. Now that they can see how much the banks were borrowing from the Fed, senators might think differently, he says.”).
2) Ökonomisch hinsichtlich der Gehaltsstruktur, weil sie es den Großbanken ermöglichte, weiterhin Vergütungen zu zahlen, die in keinem Verhältnis zum tatsächlichen wirtschaftlichen (Miss-)erfolg der Institute standen.
3) Ökonomisch in wettbewerblicher Hinsicht, weil die Großbanken die Kredite aus diesen Sonderprogrammen der FED, wenn ich es richtig verstanden habe, zu Vorzugskonditionen (praktisch zum Nullzins) erhielten. Und eine subventionierte Aufrechterhaltung von Zombiebanken geht (wie natürlich auch bei Firmen der Realwirtschaft) immer und überall zwangsläufig zu Lasten der Wettbewerber.
Was der Bericht nicht sagt, was ich – wie offenbar auch Ryan Avent (“in the wake of the financial crisis, there was a good case to be made that many of America’s largest banks were insolvent”) – aber stark vermute, ist, dass die Banken tatsächlich nicht nur illiquide, sondern zumindest einige davon eigentlich bereits insolvent waren. Das würde natürlich auch bedeuten, dass man nicht nur auf amerikanische Volkswirtschaftsstatistiken keinen Pfifferling mehr geben kann, sondern dass auch die US-Bilanzen, zumindest bei den Finanzinstituten, nach Bedarf verfälscht werden. (Wobei ich nicht ausschließen will, dass das bei unseren Großbanken nicht anders ist.)
Angeblich hat die FED die Kredite gegen Sicherheiten vergeben, aber die können höchstens Schrottwert gehabt haben, sonst hätten sich die Banken dieses Geld ja auch über die regulären Diskontfenster usw. bei der FED leihen können.
[* Der Bloomberg-Bericht ist auch wegen der Infos über die Lobby-Aktivitäten der US-Banken ein "must read"; ebenso zur Heilung eventueller Obamaniacs: "Top officials in President Barack Obama’s administration sided with the FSF in arguing against legislative curbs on the size of banks."]