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Monday, June 29, 2015

Greece opinion from people who know what they're talking about

If you want to read opinion on Greece, then you can either listen to neoliberal clowns on CNBC, Yale MBAs with an easy ticket into the corporate kleptocracy, or actual economists.

So here are some actual economists:

Joe Stiglitz - Europe's attack on Greek democracy. Quote:
In fact, European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics.

Of course, the economics behind the program that the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5% of GDP by 2018.

Economists around the world have condemned that target as punitive, because aiming for it will inevitably result in a deeper downturn. Indeed, even if Greece’s debt is restructured beyond anything imaginable, the country will remain in depression if voters there commit to the troika’s target in the snap referendum to be held this weekend.

In terms of transforming a large primary deficit into a surplus, few countries have accomplished anything like what the Greeks have achieved in the last five years. And, though the cost in terms of human suffering has been extremely high, the Greek government’s recent proposals went a long way toward meeting its creditors’ demands.

We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems.
Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, was Chairman of President Bill Clinton’s Council of Economic Advisers and served as Senior Vice President and Chief Economist of the World Bank.

Peter Dorman - a referendum on what to do yesterday. Quote:
As for the IMF, it was no secret that there has been a lot of tension between the technical staff and the politicians at the top. They have a policy, established after the Argentine fiasco, of not lending to insolvent states, but instead requiring writedowns from the creditors. Ah, but the creditors in the Greek case are the banks and governments that installed the IMF directors, so the policy is being flagrantly violated. Personally, I'm disturbed there have been no high-profile resignations on the part of the IMF economists. It's not like Blanchard couldn't pick up another job somewhere, for instance. Years down the road there will be memoirs saying "I argued against this behind closed doors", but when has that ever really mattered?
I'm not sure, but this might be the Peter Dorman at Evergreen State in Olympia.

Charles Wyplosz - the staggering cost of central bank dependence. The ECB isn't even an independent central bank, and so this is what you get as a result:
Furthermore, by joining the Troika, the ECB also chose to play a strange role. In normal programs, the IMF sits on one side of the table while the country’s authorities, the government and the central bank, occupy the other side. By being on the lenders’ side, the ECB found itself in the position of imposing and monitoring conditions. This is one aspect of the more general point made by De Grauwe (2011).

The deep reason for the Eurozone sovereign crisis is that the euro is a foreign currency for member countries. It also provides an example of how deeply politicized the ECB has become. No other central bank in the world tells its government what reforms it should conduct, nor how sharp should fiscal consolidating be. As a member of the Troika, the ECB was instructing Greece to carry out deeply redistributive policies, for which only elected politicians have a democratic mandate. In the end, it must accept the blame for poorly designed policies that have provoked a deep depression and its political consequences.

The decision to freeze ELA is taking this politicization process to a new height. In effect, the ECB is pushing Greece out of the Eurozone. Politicians may debate about the wisdom of making Greece leave. As non-elected officials, the people who sit on the Governing Board of the Eurosystem have no such mandate. A charitable interpretation is that they felt that many governments would harshly criticize keeping the flow of liquidity to Greek banks open after the Greek government in effect closed the negotiations by calling a referendum. This is true, but central bank independence is designed to prevent this kind of pressure.
Charles Wyplosz is professor of International Economics, Graduate Institute, Geneva; Director, International Centre for Money and Banking Studies; and a CEPR Research Fellow.

David Beckworth - was Grexit inevitable? There are hints in here about yet more central bank non-independence: really, it's not a European central bank, it's the German central bank. Quote:
Maybe the Eurozone crisis happened when it did because of colossal policy errors rather than being a necessary outcome of a flawed currency union. I make this argument in a new working paper and contend the policy errors were the ECB's two tightening cycles in 2008 and 2010-2011. These tightening cycles were a huge mistake and arguably what set in motion the Eurozone crisis. They helped precipitate the sovereign debt crisis and gave teeth to the austerity imposed on the periphery.

In early 2008 the Eurozone began contracting, as seen in the first panel of the figure below. The growth of total money spending, a broad indicator of monetary conditions, had started declining even earlier. With monetary conditions beginning to tighten and the economy slowing down most central banks would have cut interest rates. The ECB, however, did nothing and kept its target interest rate pegged at 4 percent. Moreover, as seen in the second panel below, the ECB was signalling a rate increase which further intensified the slowdown. Thus began the first tightening cycle of the ECB in early 2008. Finally, in July 2008 the ECB raised its target interest rate to 4.25 percent and kept it there for three months. This tightening cycle was arguably that shock the triggered the Eurozone crisis.

The second monetary policy tightening cycle began in late 2010 when the ECB began signaling again that it would be raising its policy rate to stem the burgeoning inflation. This too can be seen in second panel of the figure above. This expectation began stemming total money spending growth in early 2011. The ECB followed through on these expectations by raising its policy rate from 1 percent to 1.25 percent in April and then to 1.50 percent in July where it stayed for four months. This second tightening cycle occurred even though Eurozone was still recovering from the first recession and is arguably the shock the intensified the crisis in 2011.

As I show in the paper, these tightening cycles and preceded the financial panic of late 2008 and sovereign debt problems and appear to have given teeth [to] the austerity programs. How different would the Eurozone look today had the ECB had instead cut rates in 2008 and started its QE program back then? I think the Eurozone would be a lot different. And no, Grexit would not be an inevitable outcome. There would still be problems for the currency union, but they would problems that could be sorted out in an economy not beset by a depression.

The ECB, in other words, bears a lot of the responsibility for the impending breakup of the Eurozone. Keep that in mind this week as the Grexit comes to fruition.
David Beckworth is associate professor of economics at Western Kentucky University in Bowling Green, Kentucky.

Now that's all a rather different quality of commentary than the crap you're getting from talking heads, ain't it?

1 comment:

  1. Yes it is Peter Dorman of Evergreen. Cheers.