Euro-Tsunami, UK

26. April 2012 Von 3 Kommentare

Nur ein kurzer Eintrag heute, aber es gibt so viele interessante Dinge da draußen zu lesen, da muss ich einfach mal auf zwei hinweisen.

  1. Patrick Bernau stellt in der FAS in Auszügen sein neues Buch (“Euro-Tsunami”) vor, das unter anderen aus Blogdiskussionen mit Henry Kaspar und mir entstanden ist. Ich hatte bisher nicht die Gelegenheit es zu lesen, aber die Auszüge klingen interessant.
  2. Wenn es um austerity geht, und hier insbesondere in UK, ärgert mich die einseitige Sicht von Leuten wie Paul Krugman immer etwas. Zum Glück aber gibt es Ryan Avent, der schon mehrfach gezeigt hat, dass er die britische Wirtschaft bestens versteht und ein differenziertes Bild zeichnen kann, so auch diesmal.

Bald gibt es auch wieder mehr von mir.

Filed Under: Makro Tagged With: , , , , , ,

Europeans can’t blog?!

19. März 2012 Von 20 Kommentare

Well, the guys at Bruegel’s new blog know how to blog, that is for sure: make an eye-catching claim and try to outrage the blogosphere. But they are right, unfortunately, Europeans can’t blog. For those who are new to the topic, the inofficial introduction to the whole discussion was written by Ronny Patz.

Jérémie, Martin and Shahin basically give four reasons that are somewhat interconnected. First, the discussions of economics (and politics) take place in “printed” (this includes simple non-interactive publishing on the web) form more often than on the web. Second, there is no aggregator like Mark Thoma. Third, the language barrier does make a European discussion more difficult, and finally the culture of open discourse is underdeveloped in Europe.

Especially the last aspect is problematic because it is hardest to change but arguably the most important. As they phrase it,

European economists seem to prefer spreading knowledge rather than stirring debate.

I’d add that this is not limited to economists, but the diagnosis is correct. Part of it is rooted in a desire to teach unenlightened people “the truth”, a nasty European habit on all sides of the political spectrum. Writing essays or op-eds is the natural way to do that. The other part, however, is based on scepticism towards new forms of communication. Engaging with an audience on something as lowly as blogs requires two things: to overcome the sense of status that Europeans unfortunately possess much more than people (of a much higher status!) in the US; and to learn how to write and reply in blogs in a foreign language and for an international audience.

It is changing slowly, however. No other than Hans Werner Sinn, Germany’s most visible economist, took part in a discussion in the comment section of Herdentrieb, the economics blog of the weekly DIE ZEIT. You may think that this is not a big deal, but it certainly is a step in a new and welcome direction.

I think the main obstacle is that we don’t have blogging giants like Paul Krugman or Tyler Cowen. When you have a nucleus of bloggers with outstanding credentials, the rest will follow. If this nucleus is open to debate even the tiniest of bloggers, that is. Unfortunately, I don’t see many who could be up for the job. In my view, and given Germany’s increasing importance in Europe, Hans Werner Sinn would be an excellent candidate. Not sure he wants to become the Krugman of Europe, though.

As for the aggregator role, I think Bruegel is off to a good start, thanks for that! With a few improvements on the design, Bruegel’s blog could be the catalyst to a new development.

PS: Ryan Avent also comments. And while you are at it: do read the excellent Christmas piece in The Economist on how Martin Luther used new forms of communication during his time.

Filed Under: Gesellschaft, Presse Tagged With: , , , , , ,

Decoding Euro-moralizations

5. Dezember 2011 Von 100 Kommentare

Moralizations of the extreme form, Italian edition

There are some moral debates about the Euro going on in the international blogosphere with Tyler Cowen and Ryan Avent as the main participants, and Scott Sumner adding some interesting historical perspective.  In my view, Ryan and Tyler are not talking about the same thing, so let me offer a different take on the issue.

In discussions of the Euro crisis, all sides occasionally end up in a moralizing grey area, and this blogger is no exception (sorry for that). But I think we need to distinguish two different layers of moralizations.

The first is a sort of good/bad ideology, in which either A) the lazy, profligate Southeners get what they deserve and hard-working, prudent Germany is right to refrain from costly help, or B) the Southeners are the victims of an easy-to-fix debt run, but the selfish stability-fetishists in Germany rather hurt millions of Greeks and Italians than to embrace the obvious solution after they have so tremendously benefited from the Euro.

This sort of moralizing should be avoided by anyone who is interested in a serious discussion of the Euro crisis.

The second is the one Tyler is describing,

the kind of “system-wide” moral judgments that progressives offer up when they judge the institutions of Denmark to be superior to the institutions of Mexico, of course without ever judging the residing individuals per se.

He offers 11 examples of this kind of moralizing from a German perspective. The deeper reasons for such moralizing behaviour is, I think, a sense that something is going wrong in Europe without the ability to analyse it in economic terms, terms of game theory or political economics. Such moralizations are usually derived from principles, things you should or shouldn’t do, principles that were embedded in society for a reason: if you don’t have the ability to grasp the whole situation, it is best to stick with agreed-upon societal behaviours that served you well in the past. These may be principles of fairness, solidarity, responsibility, pragmatism, forgiveness, stability, loyalty, lawfulness and many more. Different societies put their emphasis on different subsets of these, and as Scott correctly notes: whether that choice is good or not is context-specific.

Although they are not very helpful, I would not dismiss this second kind of moralizations as easily as the one above. Sure, the distinction between the two is blurry, but there is some justified discomfort and scepticism expressed in such moralizations that actually have a serious representation in economic terms. I let Tyler describe part of it from a German perspective:

Do not think that Germany has merely to waive a magic wand, or incur a one-time cost, to set things right in the eurozone.  Any “set things right” action on Germany’s part is, one way or another, a form of doubling down.  If it fails it means a bigger eurozone implosion in the future than would happen now, including much higher costs for Germany.  The choice is not “German action vs. doom now,” it is “German action and some chance of even bigger doom later on vs. doom now.”  That’s a tough call.  The Germans understand that one better than do most of the bloggers I’ve been reading on the topic.

Moralizations of the extreme form, German edition

Of course, there are justified economic concerns behind opposite moralizations of this second kind as well. For instance, complains that Germany is unsolidarily forcing countries into depression. This moralizing statement just reflects three very important issues that tend to be ignored or dismissed much too easily in Germany:

  • Short term austerity makes things worse if there is no national central bank to pick up the slack. Almost any macroeconomic model tells us that, not to mention the empirics.
  • Deflation – if resulting from a decline in aggregate demand – is an economic catastrophe. The Germans should know that better than any other country in the world, but surprisingly most don’t. Insisting on low inflation at a time of massive economic adjustments in a currency union is inflicting enormous suffering on the periphery.
  • Central banks need to be an aggressive lender of last resort to banks to avoid a financial collapse. That is not an unorthodox Anglo-American money-printing idea. It is one of the main reasons why central banks were founded in the first place. A lender of last resort to sovereigns is a more complex issue in a currency union without a unified fiscal policy, as almost any proponent would admit.

Contrary to Ryan, I think it is useful to deal with moralizations of the second type head-on and try to explain to both sides what the economics behind these moralizations are and discuss whether they are justified or not. I find that it works well with family and friends in Germany.

But the worst thing we can do as bloggers is to get into the grey area around both kinds of moralizations ourselves – if only by playing a simplistic blame game. We should know better, and we are capable of expressing what we mean in economic terms. But the issue is subtle, and I have my doubts whether all those in this grey area realize what they are doing, on both sides of the debate. A short, but not exhaustive, checklist:

  • if you are blaming [insert country] exclusively, for instance, it is very likely that you are moralizing. An example: the Eurozone brinkmanship consists of more than one player, hot capital inflows are difficult to manage for any country, as Germany may learn in the years to come etc.
  • if you indulge in negative stereotypes, you are obviously doing it: lazy [insert countrymen], imperialistic [insert, well, Germany], … Note to non-Germans: suggestive uses of words like Reich, Anschluss, Grossdeutschmark carry a moralization and sound offensive to most Germans. They are (without exception!) unnecessary to analyse current events.
  • if you criticize the other side of moralizing, you often come close to moralizing yourself, if only by offering a counter-moralization of your own. That is dangerous territory, not every reader may understand that you were just trying to prove a point. Or weren’t you?
  • if you point out moral obligations (on both sides!), if only in suggestive sentences or headlines, you come close to moralizing, and need to be very careful. Example: “[insert core country] gained so much, and therefore…” or “The [insert Southern countrymen] were having a party for years, and have to …”.

I probably need to read my own checklist in the future before I publish a Euro crisis post… All in all, I think it is a good thing that Tyler brought it up.

PS: Tyler has a new reply to some critics. Do read that, too.

Filed Under: Presse, Außenpolitik, Gesellschaft, Politische Ökonomie Tagged With: , , , , , , , , , , ,

Europe’s Crisis and the Rigidity of Currency Unions / Europas Krise und die Rigidität von Währungsunionen

28. Oktober 2011 Von 44 Kommentare

Deutsch

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.

Deutsche Version dieses Posts

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The Irish Lesson, or: it’s Competitiveness, Stupid!

23. Oktober 2011 Von 32 Kommentare

Deutsch

A guest commentary by Henry Kaspar

Ryan Avent, economics correspondent for the Economist, has written a puzzling reply to our host Kantoos in which Avent insists on blaming (mostly) Germany for the lack of a solution to the euro crisis. Puzzling is thereby less the blame, but the disconnect between Avent’s nuanced analysis of the crisis in the article’s first part – much of which I would co-sign without hesitation – and his prescription of what it takes to solve the crisis in the second part:

All that’s necessary to solve the crisis is to show markets that the money is there to pay off the creditors. Show it to them, wave it in their faces, and they’ll calm down…. Germany, through its sheer size, its political clout, and its influence on the ECB, can make sure the money is there to end the crisis.

Such views are commonplace in parts of the German press that, maybe understandably, lacks experience with financial crises. But I am surprised to find them in the Economist. After all, it was Walter Bagehot, the Economist‘s legendary 19th century editor, who taught us that liquidity solves liquidity crises, but not crises of structural insolvency. With insolvency, liquidity support enables the debtor to pay his bills for a while – but he will still not be able to borrow, as lenders anticipate that he will again be unable to foot his bills once liquidity support is exhausted.

Thus, for “showing markets the money” to work, the peripheral euro area countries need to be solvent. Are they? I am with Kantoos that this is a far from trivial question. Many peripheral countries were on unsustainable debt paths prior to the crisis. But this is not key, as solvency is – as most things in economics – a forward looking concept: it depends on countries’ expected future debt service burden relative to its expected capacity to pay. And expectations can be shaped by policies. Meaning: within limits, countries can influence whether they are solvent or not.

One instrument are austerity policies: if they are perceived credible, they reduce the expected debt burden. But then there is the other component: capacity to pay, i.e., an economy’s ability to produce and generate income, in short: to grow. Without growth, even the most ambitious austerity policy is likely to fail. Unfortunately, growth prospects for most crisis-affected euro area countries are poor, the result of booms in non-tradable sectors (construction, financial services) pre-crisis than boosted wages without raising productivity and rendered these economies uncompetitive. An uncompetitive economy loses not only export share, it also struggles to attract capital for productive investments. In a currency union, there is only one sustainable way for uncompetitive economies to improve growth prospects – and therefore safeguard solvency: through internal devaluation, i.e., (relative) cuts in wages and social benefits.

[ok, there is a second way in principle - productivity-boosting structural reforms. But no one knows with certainty what these reforms exactly are, and in any case, they need a long time to work their way through the economy]

These mechanisms are at the core of the euro area debt crisis. For illustration, look at two economies deep in the throes of financial turbulence: Ireland and Portugal. Both have public debt ratios of about 100 percent of GDP. Both have tightened the fiscal stance significantly since the crisis’ onset – Ireland by 7, Portugal by 5 percent, according to IMF data.  And yet markets perceive these countries differently. The left-hand chart shows Portugal’s and Ireland’s CDS-spread – a quasi insurance premium for sovereign default – since the beginning of the year. In January, investors were more worried about an Irish default than about Portugal. Now it is the other way round: while Portugal’s risk spread has continued to increase, Ireland’s spread has fallen by more than 400 bps since July. With some justification, Ireland’s Prime Minister Enda Kenny hopes to re-enter global debt markets next year  and wave the IMF good-bye (around 500 bps is typically where countries lose or regain market access).

 

Why? The answer is in the right-hand chart. Because Ireland’s economy has adjusted – and this at a breathtaking pace. Between Q3 2009 and Q4 2010 (unfortunately the latest data point available, source: European Commission) its unit labor cost in the manufacturing sector fell by almost 5 percent compared to the rest of the euro area, granting the Irish economy a large competitiveness boost. As a result, Ireland’s economy is already growing, driven by exports, and its current account has shifted into surplus. It also seems its banks are now fixed (although this has come with a high price tag). All this has made investors come gradually around to the view that Ireland may be able to grow out of its debt.

Portugal, by contrast, has made little progress: the economy is expected to contract both this year and next, and its current account remains stuck at a deficit of more than 8 percent, financed by the ECB. No wonder that investors continue to doubt whether Portugal can ever foot its bills again, and refuse to give it money.

Another example: Italy and Spain. Italy’s CDS spread has more than doubled since mid-year, while Spain’s is (roughly) unchanged. Why? For once, Spain has made (modest) progress in improving competitiveness, while Italy has moved in the wrong direction. But arguably more important is that Italy’s government refused very publicly to take any growth enhancing measures, triggering a negative reassessment of Italy’s growth prospects, and therefore its solvency. There is no doubt in my mind that Italy’s risk spread surge is a solvency event, not a liquidity event (otherwise, why hasn’t Spain’s spread surged? Why not Ireland’s?).  

 

In a nutshell: at its core, the euro area crisis is about economies’ ability to adjust within a currency union, or put differently: about the member countries’ capacity to behave in a euro-compatible manner.  Economies that do adjust, like Ireland or – to a lesser degree – Spain (or in the early 2000s Germany), stand a fair chance to convince investors that they are good places to put their money. Economies that don’t, however, will struggle to regain or maintain market access – and this independent of how large any rescue pot would be.

Now what does all this mean? Of course not that liquidity support would not be part of the solution. But liquidity support must be conditional - conditional on credible assurances, or even better: demonstrated behavior to do what it takes to improve competitiveness and remain solvent. Any liquidity provider – be it the ECB, or the EFSF, or Germany – is right to insist on this. Unconditional liquidity support provokes unsustainable behavior, and therefore risks undermining the sustainability of the euro area instead of promoting it.

Now, insisting on conditionality is difficult when stability of the entire enterprise can depend on liquidity support – as the ECB learned when it tried in vain to make Italy adopt reforms in return for the ECB’s purchases of Italian government bonds. But some financial jitters may actually be a fair price to pay if they scare governments into doing the right things. After all, for countries that make no progress with restoring competitiveness at all – and therefore fail to behave in a euro-compatible manner – euro area membership is, by logical necessity, not a long-term option.

This said, the ECB could make it easier for peripheral euro member states to behave in a euro-compatible manner - by raising its inflation target. I am more skeptical than my host Kantoos as regards the means of monetary policy to boost economic activity in a debt crisis. But I agree with him that a somewhat higher inflation target for the euro area – say, 2.5 percent, core, symmetric – would facilitate the solution of the crisis, by allowing uncompetitive economies to adjust without having to resort to nominal wage cuts. The ECB cannot make insolvent economies solvent through liquidity support, but it can aid solvency by adopting a monetary policy compatible with the needs of a heterogeneous currency union.  

Deutsche Version dieses Posts

Filed Under: Finanzmarkt, Makro Tagged With: , , , , , ,

Ryan Avent und das Gespenst der 1930er Jahre / Ryan Avent and the Ghost of the 1930s

16. August 2011 Von 91 Kommentare

There is an English version

Ein Gastbeitrag von Henry Kaspar

Ryan Avents gespenstischer Vergleich der Eurokrise mit der Implosion der westlichen Welt in 1930er Jahren hat auch bei mir einen Nerv getroffen, nicht anders als bei meinem Gastgeber Kantoos. So weit hergeholt Avents Parallele zunächst scheint, so beklemmend ist sie bei näherer Betrachtung – als würde ein Drehbuch nach 80 Jahren noch einmal verfilmt werden:

  • Szene 1: das (Wieder)-herstellen einer Währungsunion, gefeiert als Meilenstein auf dem Weg zu Verständigung und Kooperation in Europa (HEUTE: Helmut Kohls Euro. DAMALS: das Wiedererrichten des Goldstandards Mitte der 1920er Jahre im Zuge der Briand-/ Stresemannschen Verständigungspolitik);
  • Szene 3: Abbruch der Kapitalströme im Zuge einer globalen Finanzkrise. Zurück bleiben ebenso überschuldete wie wettbewerbsschwache Volkswirtschaften mit hohem externen Finanzierungsbedarf (HEUTE: die GIPS-Staaten ab 2009 / DAMALS: Weimar-Deutschland ab 1929);
  • Szene 4: der Versuch der Krise mit Austerität Herr zu werden, begleitet von mühsam ausgehandelten, multilateralen Finanzierungspaketen. Alles wird dem Ziel untergeordnet Staatsbankrotte zu vermeiden und die Währungsunion zu erhalten. Die Pakete behandeln strukturelle Überschuldung als Liquiditäts- und nicht Insolvenzproblem (HEUTE: Rettungspakete für GIPS-Staaten / DAMALS: Young-Plan, Young-Anleihe und Hoover-Moratorium); Wettbewerbsfähigkeit muss durch fallende Löhne wiederhergestellt werden anstatt durch Währungsabwertung (DAMALS: Brünings Deflationspolitik) – beides freilich völlig unzureichend um die makroökonomischen Ungleichgewichte zu beseitigen.
  • Szene 5: Fortwährender Vertrauensverlust, Vertiefung der Krise, Aufruhr in den Schuldnerländern, deren Bevölkerungen nicht mehr bereit sind die drückende Last der Anpassung zu tragen, und Ermüdung auf Seiten der Gläubiger (DAMALS besonders destruktiv der U.S. Kongress, der einem gutwilligen aber führungsschwachen Präsidenten – Herbert Hoover – die Gefolgschaft versagte).

Nun muss sich die weitere Szenenfolge aus den 1930er Jahren (als bekannt vorausgesetzt) natürlich nicht wiederholen. Ryan Avent hat wohl Recht dass die makroökonomische Schieflage heute weniger dramatisch ist als damals, und das demokratische und rechtsstaatliche Fundament Europas ist (hoffentlich) tragfähiger. Auch ist die Parallele Goldstandard-Euro nicht perfekt: wie Kantoos bemerkt kann die EZB Euro drucken und damit im Zweifelsfall die Zahlungsfähigkeit der Mitgliedstaaten gewährleisten, während in den 1930er Jahren niemand Gold drucken konnte.

Aber dies ändert nichts an der Richtigkeit Ryan Avents’ bedrückender Beobachtung:

A Europe hoping never to repeat its historical tragedies has gone and blundered into institutions that make those same tragedies more likely. The European project, as it looks now, has failed.

Sprich: das Einführen der Gemeinschaftswährung mag dem europäischen Projekt mehr geschadet als genutzt haben, weil es Länder in wirtschaftliche Zwangslagen trieb, und ihnen zugleich die Politikinstrumente nahm um der Zwangslage zu entkommen.

Freilich überzeugt mich Avents Analyse mehr als seine Schlussfolgerung. Die da ist: wer „Währungsunion“ sagt muss auch „Fiskal- und Transferunion“ sagen:

What has happened now is that Europeans have been confronted with the impact of their previous decision to all hop in the same boat. If citizens of core economies are unhappy with the idea of indefinitely sharing a boat with the Greeks and Italians, then what they’re opting for is not simply the choice to avoid issuance of a eurobond, it’s an end to the euro zone.

In meinen Augen sprechen zwingende politische wie ökonomische Argumente gegen ein Fiskalunion.

Das politische Argument: wer will dass Europäer sich wieder hassen erreicht dies am zuverlässigsten mit der Rückkehr zu Gläubiger-/ Schuldnerbeziehungen zwischen europäischen Staaten, a la Deutschlands Reparationen nach dem ersten Weltkrieg. In Kantoos’ Worten:

So let us recap what a useful fiscal integration will imply: transfers from Germany to other countries. … What is more, we will make conditional transfers out of them, of the sort: money for reforms. Reforms, mind you, that these countries were politically unable to pull off because they are spectacularly unpopular. And here comes the kicker: some of these will be loans that need to be repaid, to an already unpopular creditor. Am I the only one who thinks that this is crazy?

Um das ökonomische Argument zu verstehen hilft es das Drehbuch der 1930er Jahre nochmals zur Hand zu nehmen. Denn auch die Weltwirtschaftskrise kam zu einem Ende – aber erst als:

  1. die Schuldnerstaaten den Schuldendienst eingestellt hatten - nicht nur Nazi-Deutschland, sondern auch Großbritannien und Frankreich, die ab 1932 ihre Schulden aus dem ersten Weltkrieg gegenüber den USA nicht mehr bedienten;
  2. die Währungsunion abgeschafft war. Die meisten Ländern lösten zwischen 1931 (Großbritannien) und 1934 (USA) die Bindung ihrer Währungen an Gold bzw. führten Kapitalverkehrskontrollen und Devisenbewirtschaftung ein (Nazi-Deutschland).

Diese unkontrollierten, meist unlilateral vorgenommenen Schritte führten in der Tat zunächst zu den befürchteten finanziellen Turbulenzen. Aber zwischen Ende 1932 und Anfang 1934 bekam die Weltwirtschaft die Kurve: die meisten Volkswirtschaften fingen wieder an zu wachsen.

Leider waren zu dem Zeitpunkt Demokratie und Rechtsstaat in Deutschland bereits abgeschafft.

Ich ziehe deshalb folgende Lehre aus den 1930er Jahren:

Fundamentale makroökonomische Schiefstände verlangen nach Korrektur der Schiefstände. Finanzierungspakete sind kein Ersatz: sie kaufen allenfalls Zeit um Korrekturen vorzunehmen; an den Schiefständen selbst ändern sie nichts. Und sie sind zum Scheitern verurteilt wenn die Schiefstände so groß sind dass sie im gegebenen institutionellen Rahmen nicht bewältigt werden können. In dem Fall ist der Rahmen selbst Teil des Problems, und muss korrigiert werden.

Dies bedeutet freilich dass Europas Finanzpolitiker sich schleunigst mit folgenden Gedanken vertraut machen müssen:

  1. Schuldenreduktion ist unumgänglich wo Schuldenlasten nicht nachhaltig sind. Es gibt verschiedenen Mittel zum diesem Zweck, alle mit Vor- und Nachteilen behaftet: offener Default, one-off Übertragung existierender einzelstaatlicher Schulden auf die anderen Euro-Mitgliedsländer; Sondersteuern auf Finanzinstitute und Zuführung der Erträge an überschuldete Staaten; oder eine Kombination dieser Maßnahmen. Schuldenreduktion muss freilich von Schritten belgleitet werden die eine Wiederholung der Schuldenkrise unwahrscheinlicher machen.
  2. Abwertung und Euro-Austritt muss eine Option sein; nämlich dort wo Wiederherstellen der Wettbewerbsfähigkeit durch Lohn- und Sozialkürzungen das Land in Brand stecken würde. In dem Fall ist das Lösen der “goldenen Fessel” Gemeinschaftswährung – um Barry Eichengreens berühmten Begriff zu verwenden – unumgänglich. “Eurobondage” (ein weiterer treffender Begriff Avents) löst diese Fessel aber gerade nicht, sondern zurrt sie noch fester.

Bislang scheuen Europas Finanzpolitiker vor diesen Schritten (weitgehend) zurück, aus verständlicher Angst vor den kurzfristigen Konsequenzen. Aber Ihr Zögern ist teuer: je länger es dauert desto grösseren Schaden riskieren sie für das europäische Projekt.

English version of this post

Filed Under: Finanzmarkt, Geschichte, Makro Tagged With: , , , , , , ,

More historical lessons for Europe

4. August 2011 Von 19 Kommentare

After my guest blogger Henry Kaspar showed us some historical lessons from the Gold standard (if you come from Krugman, this is the correct link), Ryan Avent has more. In a remarkable post he compares Europe’s current problems to the history of the 1930s and the rise of the Nazi regime in Germany. And he does a good job at it, given the length of a blog post. He writes:

There is a striking irony to the current situation in the euro zone. It’s often assumed that hyperinflation gave the world the Nazis; that’s wrong.

Well, mostly wrong. In his earlier days and attempted coup d’état (in 1923), Hitler was in part exploiting the frustrations of Germans (Bavarians, actually, as he was only active in Munich), with the hyperinflation – brilliantly captured by Lion Feuchtwanger’s novel “Erfolg” (“Success”). But the Nazi rise to power came later, when Germany was struggling: politically, as an increasingly violent and heavily divided society made any compromise very difficult. And economically, as Ryan compactly summarizes as follows:

… [During the economic crises after 1929], Germany found itself squeezed on two sides. The economy was crushed by an intense cycle of deleveraging and austerity, as the government struggled to maintain market confidence. And pressure was also applied on the monetary side, as Germany battled to fight gold outflows and keep itself on the gold standard.

… As European economies like Austria and Germany failed, America, Britain and France scrambled to assemble aid packages that might prevent a collapse, but these negotiations were inevitably characterised by petty disagreements and myopia, and the resulting aid packages were always too small and came too late.

Eventually, the system failed entirely, countries began abandoning gold, reinflating, and spending heavily on an arms buildup. The back of the Depression was broken. But it was too late to save Europe from utter catastrophe.

Then Ryan’s post culminates in what can be interpreted as a heavy criticism of European economists that did not foresee that they were about to wreck the very project that the Euro was to be the crown of:

The European Union, and its single-currency extension, were forged in the decades following the war in an effort to make sure that war never again divided and savaged the continent. But strangely enough, in the effort to tie itself together, Europe imposed some of the same fiscal and monetary constraints that precipitated the collapse of the 1930s. And here we are, watching history repeat itself. Within a Europe riven by imbalances, the fiscal and monetary screws are once again being applied to countries with no hope of escaping their financial burdens. Markets are attacking, and efforts to salvage the situation through massive aid packages are emerging too small and late to matter. The pressure within the squeezed economies is building, and that pressure will find a release, one way or another. A Europe hoping never to repeat its historical tragedies has gone and blundered into institutions that make those same tragedies more likely. The European project, as it looks now, has failed. …

One has to feel sorry for Europe, in a way. It did its best to learn from history, hoping never to repeat it. But history is a long, complex course, and there’s always a chance that the lessons you miss are the most important ones.

This contains more truth than the average (or even not-so-average) European is willing to concede.

I have repeatedly argued that we are about to destroy the brilliant and historically unique political project that is Europe. But whenever I did, I was writing against fiscal integration, something that Ryan and others seem to see as the solution. So let us recap what a useful fiscal integration will imply: transfers from Germany to other countries. Period. Anyone who denies this is utterly naïve. What is more, we will make conditional transfers out of them, of the sort: money for reforms. Reforms, mind you, that these countries were politically unable to pull off because they are spectacularly unpopular. And here comes the kicker: some of these will be loans that need to be repaid, to an already unpopular creditor. Am I the only one who thinks that this is crazy?

As much as I share Ryan’s analysis, there are important differences to the 1930s and in those can we find a better plan for the future. The Euro is like the Gold standard, but not exactly the same. First, we have a central bank printing “gold”. That is not a minor difference, it is key: the ECB sets the overall European inflation target. With a more appropriate target, given the historical lessons for such a diverse monetary union, for instance an price level target with 4-5% inflation p.a. (or better yet: a nominal spending level target of 6-7%), this central bank could be a very important building block of a fairly successful currency union. What is more, this central bank could use its powers to conduct somewhat differentiated monetary policy and force governments into counter-cyclical fiscal and regulatory responses.

And since the European debt crises is to a great extent a banking crisis – otherwise Greece and Portugal would just default and conduct an IMF programme, and Ireland would have never been in trouble in the first place – we need a central and politically independent European banking regulation authority with almost unlimited powers. Tyler Cowen argues that this is the first step to a fiscal union if it contains an FDIC-like deposit insurance, and I partly agree. But if there ever was a reasonable argument for a fiscal union, it is here.

Unfortunately, a lot of political capital was already wasted on “rescue packages” and a beginning fiscal union, that solve nothing. But what is left of the political capital needs to be spent on these three areas (an appropriate ECB target, a differentiated monetary policy and a central banking authority) and not on a fiscal union that is bound to make things worse.

Filed Under: Makro Tagged With: , , , , , , ,
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