Friday, July 31, 2015
Ann Pettifor ha resumido la actual (julio 2015) encrucijada europea de esta manera:
“El camino hacia delante para los países atrapados en la Eurozona parece penoso. La zona económica en su conjunto es un desastre-no hay otra forma de describirla.
Las alternativas hercúleas que los líderes de la Eurozona deberían afrontar son éstas:
1) Permanecer con el corsé actual que constituyen las reglas de la Eurozona y su diseño. Los riesgos de seguir esta alternativa es que más y más países-incluyendo países grandes e importantes como Italia y Francia- caerán en depresiones económicas profundas con creciente e impagable deuda pública y desequilibrios sustanciales. Con el ascenso de un partido fascista en Francia y de la derecha y fuerzas populistas en Italia, las perspectivas no parecen favorables.
2) Abolir el euro (una tarea tremenda y compleja) y el retorno a las divisas nacionales, con todos los riesgos políticos y económicos asociados al desmantelamiento del sistema; pero con la posibilidad de que los países recuperen su autonomía en política económica.
3) Crear una Eurozona más limitada con aquellos estados cuyas economías están más integradas y convergen-bien creando el “Euro del Norte” o abandonando a Grecia y, a su tiempo, otros estados que caerán en muy graves dificultades.
4) Crear una unión fiscal y política-preferiblemente con sus propias instituciones democráticas responsables, bien para todos los actuales miembros de la Eurozona o para una vanguardia inicial de países y preferiblemente a la vez cambiar el mandato del Banco Central Europeo para hacerlo responsable antes las instituciones representativas
Todas estas opciones están cargadas de dificultad. Pero permanecer con el corsé de una unión monetaria diseñada para servir los intereses del capital internacional a expensas de las empresas y ciudadanos europeos, entrañaría no solo un fracaso económico de la escala del de los años 1920 y 1930, sino también una conflagración política.
Sería mejor si los líderes europeos aprenden de la historia y no la repiten. Sobre todo deben reconocer las profundas equivocaciones que sostienen las visiones utópicas de los ideólogos neoliberales- antes de que Europa se hunda en crisis incluso más profundas.”
(Ann Pettifor, Por qué el euro es como un mandato grande de patrón oro y fracasará como el patrón oro.)
Un diagnóstico parecido es el de Shahin Vallée:
“Con independencia de lo que suceda en Grecia, el acuerdo del 13 de julio ha hecho la perspectiva de una ruptura futura del euro mucho más probable. La cuestión es si tomará la forma de una ordenada salida por parte de Alemania o de una prolongada y económicamente más destructiva salida por parte de Francia y el sur de Europa.”
El análisis de Pettifor resulta sumamente revelador en su comparación e ilustración histórica. Aquí algunas de sus consideraciones e hilo:
“Today the architecture of that euro system devised by the Werner and Delors
Committees appears increasingly unstable. Many economists expect Greece to exit the
Eurozone in due course. Germany positively promotes this outcome. There are some
economists that believe the Eurozone as a whole will collapse, with Germany the first
to exit. 10 Is the Eurozone approaching a seminal moment like that day in September,
1931 when Britain was the first to exit the gold standard, an exit many had believed
In this brief review of the key elements of the European Monetary Union (EMU) and its
parallels with the gold standard, I want to show just how much the two systems hold
The system’s architecture is now at risk of collapse. The inflexible “rules’ or Maastricht
criteria are openly flouted not only by southern European countries, but also by
Germany. Eurozone debt as a share of GDP jumped to €9.4 trillion in the first quarter of
2015, and at 92.9% of GDP is way above the Maastricht criterion of 60% of GDP. By
this measure the whole Eurozone is in non-compliance – and should be expelled from
er, the Eurozone. These public debt levels will continue their inexorable rise, thanks
largely (and counter-intuitively for orthodox economists) to “austerity” policies that
are largely deflationary.
The plain truth is that the Euro is a product of utopian neoliberal economists and their
ambitions for a monetary system governed only by market forces. According to the
ideology, market forces must be beyond the reach of any European state. It is this
utopian vision and its embodiment in the “rules” of the Euro system that is deeply
flawed, and is the cause of economic failure and of social and political instability
within the Eurozone.
What are the “rules” of the Euro?
Here, crudely summarized are the ‘rules’ that 19 Eurozone member countries must
follow. They must:
1. abandon their own national currency, in order to adopt a Europe-wide currency
over which they will have no control and minimal influence
2. accept that the value of this common currency, detached from any state, will be
controlled (sic) by technocrats, bankers and financial markets
3. accept that the currency might be or become overvalued, relative to the EZ’s
domestic economies, or undervalued (as it is for Germany now)
4. agree to lower internal prices and wages as the sole way of correcting imbalances.
Falling prices and wages will, it is assumed, make the nation’s exports more
5. give up oversight over Europe’s central bank, and instead delegate central bank
governance to unaccountable central bankers and technocrats based in Frankfurt
6. give up to the ECB and creditors, including the all-powerful actors in bond
markets, the power to determine, or influence, interest rates across the spectrum
of lending: for the base rate, short and long-term loans, safe and risky loans, and
in real terms: i.e. relative to inflation
7. accept that the ECB has a mandate to use monetary policy and operations for one
primary purpose only: price stability (a mandate that it has not honoured) and not
full employment, as is the mandate of the US’s Federal Reserve
8. agree to remove any barriers that limit the free flow of capital across the borders
of the Eurozone – one of the foundational ‘four freedoms’ of the European Union
9. refrain from undertaking democratically-driven decisions to increase or cut public
spending in response to a slump or boom
10. agree to limit (under almost all economic circumstances) government annual
deficits (expenditure in excess of income) to 3% of the nation’s annual income
11. ensure that the total stock of public debt does not exceed 60% of annual income
Finally Eurozone governments must submit to these “rules” without any
arrangements for political or fiscal union and transfers between those within the
“monetary union” being put in place.
These broadly are the conditions attached to Eurozone membership, set out in the
two current Treaties.14 The rules and procedures are opaque and complex, making
them hard for citizens to understand. As noted earlier, the Treaties refer to “economic
and monetary union”, whereas the reality is that there is only a monetary union that
lacks its essential “economic” counterpart.
So how do the “rules” of the gold standard compare to those of the Eurozone?
1. Abandonment of control over the currency
On joining the Eurozone countries voluntarily give up control over the nation’s
currency. Under the gold standard, participating governments and their central banks
effectively lost control over the nation’s currency, and to a large extent over economic
policy. This “rule” of the gold standard – the removal of governmental and central
bank control over the exchange rate – was not exactly replicated by the Euro system.
Instead all national currencies were simply abolished, and replaced by a currency that
– as now structured – is accountable to no government(s) or people(s), and is issued
by no state.
As Eichengreen and Temin explain in a recent paper:
“The gold standard was preserved by an ideology that indicated that only
under extreme conditions could the fixed exchange rate be unfixed. The euro
has gone one step further by eliminating national currencies.”
3. No co-ordinating body to maintain balance and stability
The second important characteristic of the gold standard system was that it had no
international coordinating body that could help stabilize economic and financial
imbalances between countries in surplus, and those in deficit. The Eurozone operates
in pretty much the same way: there is no coordinating institution set up to manage
and stabilize economic and financial imbalances between member countries
4. Unfettered capital mobility
A third “rule” of the gold standard was one that gave citizens and firms unfettered
freedom to engage in international transactions. In other words, the freedom to buy or
sell abroad, to move money (or gold) across borders, regardless of the impact on the
domestic economy. Private bankers, traders and wealthy elites welcomed this
freedom to move capital abroad.
It was capital mobility that made it easy for Europeans to trade with each other. But it
was not until the Eurozone system was firmly established, and Greece had joined the
Eurozone in 2001, that German, French and US banks felt sufficiently confident of
Euro-wide implicit bailout guarantees to risk making larger-scale loans to poor,
potentially unreliable Greek borrowers – including the Greek state. And it was capital
mobility, facilitated by their country’s entry into the Eurozone that gave wealthy
Greeks the freedom to move their funds out of Greece, and to accelerate those flows
without impediment when the country began to experience difficulties.
5. Deflation as a correction to imbalances
Under the gold standard, a scarcity of gold forced participating governments to
deflate their economies.
Just as with the gold standard, so with the Eurozone: an over-valued currency based
on Eurozone (Maastricht) rules can have the same deflationary impact on a member
country. Even while GDP collapses, and internal prices and wages turn negative as
they are now in Greece, Greece’s currency - the Euro - can be maintained at artificially
high levels by the ECB. In a deflationary environment an over-valued currency
intensifies economic contraction. Unemployment and bankruptcies rise, and as
demand falls, the money supply contracts and wages and prices tumble further. Then,
as Wynne Godley warned way back in 1997,
“there is nothing to stop it suffering a process of cumulative and terminal
decline leading, in the end, to emigration as the only alternative to poverty or
While other members of the Eurozone may regard Greece as an outlier, and as a
country that has brought its difficulties upon itself, they too may suffer collectively
from the rigidity of the Euro system. Godley again:
“… [I]f Europe is not to have a full-scale budget of its own under the new
arrangements it will still have, by default, a fiscal stance of its own made up of
the individual budgets of component states. The danger, then, is that the
budgetary restraint to which governments are individually committed will
impart a disinflationary bias that locks Europe as a whole into a depression it
is powerless to lift.”
As this goes to press the Eurozone is struggling to emerge from a prolonged period of
high unemployment, falling real wages and prices, and low levels of investment. Some
countries have faced depressions that have rivaled those of the 1930s. In fact, over the
10 years from 2004 to 2014, the average annual change in real GDP in the Eurozone
has been just 0.7% (compared to 0.9% for the whole EU), and since 2007, the average
change in Eurozone GDP is negative, at -0.1% per year (the figure for Greece is -0.4%
6. Protectionism and the rise of nationalism
Under the gold standard political reactions were predictable: farmers and
entrepreneurs fought back and sought protection from the ‘fantastic’ and
unaccountable machinery that was the gold standard. Protectionism and
defensiveness became rife. And as Karl Polanyi argued in The Great Transformation
the effect was the opposite to that wished for by international creditors: national
governments were lobbied by their citizens to intervene, to raise tariffs, and to protect
the domestic economy from the fluctuations of the gold standard.
“the utopianism of the market liberals led them to invent the gold standard as a
mechanism that would bring a borderless world of growing prosperity. Instead, the
relentless shocks of the gold standard forced nations to consolidate themselves
around heightened national, and then, imperial boundaries.”
In the early twentieth century, heightened nationalism and protectionism intensified
international rivalry and conflict. These tensions climaxed with the First World War.
Soon after the first shot was fired, the gold standard was abandoned by many nations.
It was revived again in the 1920s under pressure from the world’s most powerful
bankers. In Britain it was Churchill that agreed to enter the system, despite his own
severe reservations about its likely impact on British industry.
Once again the economic strains proved unbearable, as Europe and the United States
endured financial crises, dramatic rises in unemployment, general strikes and stock
market crashes. Finally the system collapsed in 1931 when Britain left the gold
standard, largely on the advice of John Maynard Keynes – who was bitterly opposed to
it. The United States under President Roosevelt followed suit in 1933.
Where now for the Eurozone?
The way forward for countries trapped within the Eurozone looks bleak. The economic
zone as a whole is a mess – there is no other way to describe it.
The herculean choices facing Eurozone leaders are these:
1) To remain within the current “corset” that are the Eurozone rules and
framework. The risks of taking this path are that more and more countries –
including big important countries like Italy and France - will fall into deep
economic depressions with rising and unpayable public debt and substantial
imbalances. With the rise of a fascist party in France and of right-wing and
populist forces in Italy, the prospects do not look pretty.
2) Abolish the euro (a huge and complex task) and return to national currencies,
with all the economic and political risks associated with dismantling the
system; but with the possibility of countries regaining economic policy
3) Create a more limited Eurozone of states whose economies are more
integrated and convergent – either by creating e.g. “the northern Euro” or by
‘shedding’ Greece, and in due course other states who fall into very grave
4) Create a political and fiscal union – preferably with its own democratically
accountable institutions - for either all the current EZ members, or for an
initial vanguard of countries – to create a system of economic as well as
monetary union; and preferably at the same time change the mandate of the
ECB to make it more accountable to democratic institutions.
All of these choices are fraught with difficulty. But remaining within the “corset” of a
monetary union designed to serve the interests of global, mobile capital at the
expense of European firms and citizens, risks not just economic failure on the scale of
the 1920s and 1930s – but also political conflagration. It would be best if Europe’s
leaders learnt from, and did not repeat history. Above all they must finally
acknowledge the deep flaws behind the utopian visions of free market, neoliberal
ideologues – before Europe plunges into even deeper crises.”
Monday, July 27, 2015
LAS BOLSAS CHINAS SEGUN MICHAEL PETTIS
Michael Pettis sobre las bolsas chinas:
"Anyone who reads my blog is already likely to know the story. Until the market peaked on June 12, with the Shanghai Composite at 5,178, China had experienced a stock market boom that saw the Shanghai index rising in what seemed like a straight line by more than 135% in one year. The boom seemed almost inexplicable from a fundamental point of view. The market soared as growth expectations for the Chinese economy fell, corporate profitability was squeezed, and banks, who dominate the index, saw a sharp rise in NPLs. What’s more, during this period it was increasingly clear that China’s declining GDP growth was still overly reliant on excessively rapid credit growth, and that to get control of the latter the former would have to drop a lot more.
Although the market peaked in mid-June, the panic really began some time in the first week of July (July 7 is now being referred to by some as China’s “Black Tuesday”), by which time, however, the market had already lost nearly one third of its value. Since late June Beijing had implemented a series of measures to stop the decline, none of which had the desired effect, and by the weekend of July 4-5 there was a sense of complete desperation as the regulators reached for wholly unprecedented attempts to control the fall.
The stock market panic seems to have ended on July 9, when the Shanghai markets closed up 5.8% on the day, followed by strong gains the following Friday and Monday, but Tuesday’s 3.0% decline set hearts fluttering again, and the nervousness did not abate over the next three days as stocks continue to rise, but not without drama. For now I think we can safely say the panic is finally over, but none of the fundamental questions have been resolved and I expect continued volatility. Because I also think the market remains overvalued, however, I have little doubt that we will see at least one more very nasty bear market.
Either way the panic and the policy responses have opened up a ferocious debate on China’s economic reforms and Beijing’s ability to bear the costs of the economic adjustment. Among these costs are volatility. Rebalancing the economy and withdrawing state control over certain aspects of the economy, especially its financial system, will reduce Beijing’s ability to manage the economy smoothly over the short term but it may be necessary in order to prevent a very dangerous surge in volatility over the longer term.
Sunday’s Financial Times included an article with the following:
Critics of the measures unleashed by Beijing last week argue that they point to a fundamental tension at the heart of China’s political economy that a free-floating renminbi would test even more severely. The ruling Chinese Communist party, they argue, is ultimately incapable of surrendering control of crucial facets of the country’s economic and financial system. As one person close to policymakers in Beijing puts it: “The problem with this system is that it cannot tolerate volatility and markets are all about volatility.”
It’s not just that markets are about volatility. It is that volatility can never be eliminated. Volatility in one variable can be suppressed, but only by increasing volatility in another variable or by suppressing it temporarily in exchange for a more disruptive adjustment at some point in the future. When it comes to monetary volatility, for example, whether it is exchange rate volatility or interest rate and money supply volatility, central banks can famously choose to control the former in exchange for greater volatility in the latter, or to control the latter in exchange for greater volatility in the former.
Regulators can never choose how much volatility they will permit, in other words. At best, they might choose the form of volatility they least prefer, and try to control it, but this is almost always a political choice and not an economic one. It is about deciding which economic group will bear the cost of volatility.
But one way or another there will be an enormous amount of volatility within the Chinese economy, not just because it is a relatively poor developing country, which have always been more volatile economically than advanced countries, but also because it is so highly dependent on investment to generate growth. Hyman Minsky argued that economies driven by investment are extremely volatile and overly susceptible to changes in sentiment, and he is almost certainly right.
During the market panic I posted a number of short (1,500 character maximum) messages for my clients on a service available to them through Global Source, who administers my newsletter. I thought in this blog entry I would reproduce the July 8-10 messages in their entirety because they focus on a technical aspect of the Chinese markets that I think is extremely important to understand if we want to understand why volatility is not going to go away. The key point is to distinguish between the types of investment strategies that investors follow (which I discuss more explicitly in my 2013 book on China and in a November 24, 2013, blog entry) and to understand the different ways in which they interpret new information.
The more widely dispersed the investment strategies, and the greater the range of interpretations by which new information is assessed, the more stable a market is likely to be. In China not only is the market wholly speculative, for the reasons I discuss in the blog entry, but even among speculators there seems to have been a dramatic convergence in the way they interpret information. Because this has only been reinforced by the recent behavior of the regulators, it is almost inconceivable to me that we will not see more highly disruptive movement in the Chinese stock markets: