Sunday, April 29, 2012


EconoMonitor : EconoMonitor » The European Debt Crisis Redux

The failure of the LTRO to decisively solve European problems is unsurprising. Confidential analyses prepared by European Union officials and distributed to ministers meeting at the Copenhagen meeting in March 2012 concluded that the Euro 1 trillion in loans was a “reprieve”, rather than a solution.

Rather than take the time afforded to move on other fronts, European leaders reverted to type. Spanish Finance Minister Luis de Guindos opined that: “We are convinced that Spain will no longer be a problem, especially for the Spanish, but also for the European Union”. It was eerily reminiscent of his predecessor Elena Salgado who almost exactly one year earlier on 11 April 2011 said: “I do not see any risk of contagion. We are totally out of this”.  The optimism was echoed by French President Nicolas Sarkozy who was confident that the Euro-Zone had “turned the page”. Italian Prime Minster Mario Monti stated that the “financial aspect” of the crisis had ended.

The European debt crisis is not over. Fundamental problems – debt levels, trade imbalances, problems of the banking sectors, required structural reforms, employment and economic growth – remain.

Beyond the German favoured remedy of asphyxiating austerity to either cure or kill the patient, Europe is rapidly running out of ideas and time to deal with the issues. As the real economy stalls and debt problems continue, the most likely policy actions may come from the ECB – an interest rate cut to near zero and further liquidity support, perhaps even full-scale quantitative easing. Bailout funds may be channelled to recapitalise Spanish banks, as a means of helping Spain without resort to a full-blown bailout package.

It is doubtful whether any of these steps will work.

European politicians and citizens want a quick return to a period Spaniards now refer to as cuando pensábamos que éramos ricos which translates to “when we thought we were rich”. Official policies and action are focused on deferring rather than dealing with the problem. Unfortunately, that means the inevitability of meeting the same problem somewhere down the road.

John Maynard Keynes observed in The Economic Consequences of the Peace that each action designed to bring closure to one crisis sows the seeds of greater economic, political and social problems. Europe is living the truth of that statement one day at a time.

Monday, April 9, 2012


Steve Keen, además de autor del libro "Debunking Economics" y del blog, ha sido noticia de actualidad por su reciente polémica con el Nobel Krugman sobre el modelo neoclásico. Según el consenso común, el Nobel no brilló en la misma.

A la pregunta de si estamos en una "Gran Depresión", Keen contestó lo siguiente:

"We’re already in one. And the same thing applied back in the last Great Depression that people didn’t call it one until it was over. Because in an experience like this you’re always hoping there’s change just around the corner, the system will turn around. It’s only after you’ve been through it people look back and see that it’s been going for some years. So the Great Depression wasn’t called the Great Depression until sometime in the late 1930s."

En su trabajo "La inestabilidad en los mercados financieros: fuentes y remedios", que será presentado en la INET conference “Paradigm Lost: Rethinking Economics and Politics“ (Berlin Abril 12-14), señala la capital importancia de los mecanismos financieros que crearon la crisis en primer lugar para considerar cualquier alternativa realista a la misma.

Cuando todo queda reducido a las vueltas de tuerca en la reducción del gasto y de los déficits públicos, el señalar la realidad solo sería saludable, si el planteamiento ganara un lugar en un debate que es inexistente a cualquier nivel. Mientras tanto, no solo la crisis fue necesaria, sino que también son únicos y necesarios los pretendidos remedios.

Wednesday, April 4, 2012


Edward Hugh ha resumido aquí con gran habilidad y finesse el estado de la crisis europea que todos los responsables se obstinan en considerar en términos equivocados.Lo hace con motivo del concurso convocado por Lord Wolfson sobre una remodelación ordenada de la zona euro:


"In particular I would highlight two key features which often seem to get ignored.

a) the impact of financial globalisation and what Carsten Valgreen calls the global financial accelerator on currency values. Virtually no one – not the USD or the UK pound sterling, or the Swedish Krona – can manage their currency valuation as they see fit, or devalue as they want. Currency parities are determined by complex interactive process which are by their very nature non linear in character.

Just look at the current valuation of the Japanese Yen and its impact on Japanese exports. It is impossible to understand much about current German policy thinking if you don’t get the fact that a principle constraint and line in the sand for Germany is not ending up being another Japan. The world of the 1990′s was not like this, and the simple rote argument of devaluation as the answer (which I myself use because while not being entirely right is not entirely wrong either) is not as straightforward as it seems, or as it once was. Hence the resistance in Brussels, Berlin and Paris to this panacea.

b) European societies are ageing rapidly, and this has implications. You will strain hard to find any reference to this phenomenon in the majority of commentaries offered on what to do about the Euro crisis, yet arguably the phenomenon of population ageing lies at the heart of the current debt crisis in developed economies. Impending health and pension liabilities are what makes so much sovereign debt unsustainable, and this is an issue which goes beyond the boundaries of the Euro Area, affecting countries like the US, the UK and Japan. Again, “the Euro is the root of all evil” argument fails to address this issue.


c) Finally we now have more than a decade’s experience of labour mobility from one European country to another, and in particular of migration patterns from periphery countries to the core. Among young qualified workers there is more mobility than many seem to imagine. I was in Latvia recently, which is a country not in the Euro but which is suffering population loss in such a way as to make its very continuity unsustainable in the longer run (you can find and download my presentation here). What I became convinced of during my visit there is that the fiscal union question is not only a Euro currency one. Simply having a single labour market in the context of generalised population ageing means that even non Euro countries will eventually need to participate in a common treasury due to the health and pension liabilities they are going to face.


Well, the LTROs have temporarily stabilised things, and made deposit movements from one country to another a much more containable evil. But this only offers some short term relief. Credit is still gridlocked all along the periphery, where the various countries are essentially entering long term depressions, with very high levels of unemployment, low economic growth and rising non performing loans in the financial sector. This is all unsustainable, but still, what could possibly be the trigger for disorderly break up?"

EconoMonitor : Don't Shoot the Messenger » What Wolfson Did Next

Tuesday, April 3, 2012


La información, sobre los avales del Estado a las emisiones de bancos españoles, procede de la Dirección General del Tesoro y de la entrada de hoy de Luis Garicano en Nada es Gratis.

Taambién sobre este tema las dos colaboraciones de Tano Santos del 29 de Marzo.

Sunday, April 1, 2012


La cara de la crisis de la eurozona

EconoMonitor : RGE Analysts » Eurozone Crisis: In the Eye of the Storm

"But for the firewall to work both its EU and IMF elements must be large enough. This is far from guaranteed, and failure on this point could trigger a massive escalation of the crisis. On the EU side of the firewall, there are currently two funds in place, the European Financial Stability Facility (EFSF), which has around 250 billion euros in available funding, and the 500 billion euro European Stability Mechanism (ESM). The former is due to replace the ESM in June 2012, but the only way to amass enough funds to cover Italy and Spain’s financing needs for a few years is to run the EFSF and ESM concurrently. However, German Chancellor Angela Merkel remains — for now, at least — vehemently opposed to this idea. Similarly on the IMF side, many countries have indicated their reluctance to contribute to a firewall until the Eurozone devotes more of its own collective resources to solving its crisis.


Figure 2: Composition of the Firewall vs. Financing Costs for the PIIGS (€, billions)"

Source: EFSF, ESM, RGE estimates* We assume that Italy and Spain will not be forced to request official financing before 2013