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after 25 years telling us how devaluations were a bad, bad, bad process, leading to lower long term competitiveness, declining standards of living, beggar-thy-neighbor policies, we're now being told by the same economists that it's THE solution, and that it's apparently painless.

The whole point of a devaluation is still to stuff the poor (those who get their income in devalued currency, rather than those that have assets that can keep their value in hard currency terms)

And I still fail to see how this is going to lead to any breakup of the euro, even if Greece defaults. I see Portugal and Spain being asked to pay higher interest rates to borrow for a while, but what other practical consequence would it have?

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu May 6th, 2010 at 05:38:29 AM EST
I think it's highly unfair to rank Stiglitz and Krugman among "he same economists". Or to imply that they describe deflation as painless.

Or even as THE solution. All in all, they would probably advocate greater fiscal integration. But that would not work too well with the current German memes either.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu May 6th, 2010 at 06:26:51 AM EST
[ Parent ]
Everyone thinks¨"growth" sounds good.

"Stability" is pretty nice, too.

So is "fiscal responsibility".

And "single market freedoms".

And "sovereignty".

And "rising living standards".

And "low taxes".

And "quality public services".

And "a social safety net".

The trouble is having all of these things simultaneously seem to be inconsistent with any view of macroeconomics which is not a fairy tale, in the line of Veblen, Keynes, Fisher, Minsky and Keen.

Oh, darn, I'm sounding like an economics crackpot again...

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Thu May 6th, 2010 at 06:35:39 AM EST
[ Parent ]
I agree with what you say.
But the way I read these two (Krugman and Stiglitz), they seem to me to be aware of the fact that they can't all go together -or, actually, are good per se (certainly growth, single market freedoms and low taxes are not an unqualified positive).

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Thu May 6th, 2010 at 07:08:17 AM EST
[ Parent ]
The current EU crisis is political - all about sharing losses.

The problem is that, as we know, sharing is only possible when economic growth is sufficient to mask the extent to which the sharing is unfair. In the middle of the biggest economic crisis since the 1930's, people are in each-man-for-himself mode and the EU has deliberately downplayed the political aspects of European integration for the past 15 years.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Thu May 6th, 2010 at 07:18:45 AM EST
[ Parent ]
This is true. Why it's true is not explained by politics or economics, but cognitive science and history.

"sharing is only possible when economic growth is sufficient to mask the extent to which the sharing is unfair"

You're really talking about how rich people capture the memes people operate under.

Well, maybe the Internet blogs will make a revolution of redistribution. Not likely, tho.

Align culture with our nature. Ot else!

by ormondotvos (ormond.otvosnospamgmialcon) on Thu May 6th, 2010 at 09:43:28 PM EST
[ Parent ]
after 25 years telling us how devaluations were a bad, bad, bad process, leading to lower long term competitiveness, declining standards of living, beggar-thy-neighbor policies, we're now being told by the same economists that it's THE solution

The dustbin on modern history is truly filled with the ashes of ideas torched by Paul Krugman.

Note the article is from 1999.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 6th, 2010 at 06:46:39 AM EST
[ Parent ]
Well, that article clearly points out that the markets forgot for 10 years that the euro is a structurally hawkish currency. There was no reason for Spanish or Greek bonds to cost the same as German ones, and yet they did.

So markets mispriced risk for 10 years and are now panicking. Big f'ing deal. They are panicking over EXACTLY what they warned would be the reality of the euro - spendhrift Southerners and intractable Germans. They were wrong, it's their problem, not Europe's.

And well, yes, Greece should have been a bit less careless in how it spend money it borrowed at unexpectedly cheap rates. It's not because banks throw money at you that you have to burn it.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu May 6th, 2010 at 07:44:26 AM EST
[ Parent ]
How does any of that make Krugman (1) wrong or (2) a flip-flopper on currency devaluation, as you alleged in your first comment?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 6th, 2010 at 07:56:42 AM EST
[ Parent ]
I didn't write specifically about Krugman, but if you want to make this specifically about him, you'd have to dig up whatever he wrote on devaluations in the 90s.

From the article you linked to, I note that the "Europe is doomed" theme was already dominant in his writing - you could hardly be more sneeringly dismissive of European than he is.

Whatever Europe does is fucked up is what I read from your link.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu May 6th, 2010 at 08:02:31 AM EST
[ Parent ]
Who specifically were you referencing then?  Stiglitz?  There were only two guys mentioned here, neither of whom have been big pushers of anti-European sentiment over the years (quite the contrary, and you know it as well as I do).

The article is from the '90s.  This isn't some new thing he picked up.

So I take it all criticism of any EU structure is just fools falling prey to the Europe.is.Doomed(TM) meme?  That's what your responses basically suggest.

"The Germans can do no wrong.  We'd all be filthy rich if the rest of the world just ran trade surpluses like they did."

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 6th, 2010 at 08:27:40 AM EST
[ Parent ]
There was no reason for Spanish or Greek bonds to cost the same as German ones, and yet they did.
Do I have to remind you of the debt-to-GDP ratios of Germany and Spain over the last 10 years? Let's see. (Eurostat)
      DE    ES
1998  60.3% 64.1%
1999  60.9% 62.3%
2000  60.4% 59.3%
2001  58.8% 55.5%
2002  60.4% 52.5%
2003  63.9% 48.7%
2004  65.7% 46.2%
2005  68.0% 43.0%
2006  67.6% 39.6%
2007  65.0% 36.2%
2008  66.0% 39.7%
2009  73.2% 53.2%
I won't embarrass you with France's numbers. But I will remind you of this
Heads of state and government agreed at the March 2005 Summit to revise the EU's Stability and Growth Pact reform. Under the revised rules, member states must still keep their public deficits under a 3% GDP/deficit ratio and their debts under a 60% GDP/debt ratio.

However, the pact's rules have been made more 'flexible' across a range of areas. For example, member states will avoid an excessive deficit procedure (EDP) if they experience any negative growth at all (previously -2%), can draw on more "relevant factors" to avoid an EDP and will have longer deadlines if they do move into an EDP.

...

In essence, big countries such as France and Germany have won concessions making the pact more 'flexible' in various parts, adding up to a considerable relaxation of the rules. In return, countries such as Austria and Netherlands have won references to "enhanced surveillance, peer support and peer pressure".

The two thresholds - 60% for the debt and 3% for the deficit - remain unchanged.

It's all a farce.

The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Thu May 6th, 2010 at 08:36:41 AM EST
[ Parent ]
It's not a farce.

The EU is the only entity capable of taking on the finance industry. Therefore the finance industry has decided to destroy the EU.

It's not bizarre that it's happening - it's bizarre that the EU 'leaders' are taking the attacks at face value and assuming that this is about fiscal responsibility, or whatever other reason is being used as the pretext du jour. And also that Germany has gotten itself into a position where internal politics have become more influential than long term solidarity.

In reality it's the bully coming over and saying 'I don't like your face' and using it as an excuse to pick a fight. Trying to put on a different face won't help.

It makes no sense to keep believing that the markets are playing by some kind of standard economic rules when the crash of 2008/9 and the subsequent bail-outs proved that they're only in it for whatever they can get, and that the rules will change whenever and however they need to.

And if that means taking down a government or two - all the better.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 6th, 2010 at 08:55:54 AM EST
[ Parent ]
It's not bizarre that it's happening - it's bizarre that the EU 'leaders' are taking the attacks at face value and assuming that this is about fiscal responsibility, or whatever other reason is being used as the pretext du jour. And also that Germany has gotten itself into a position where internal politics have become more influential than long term solidarity.
Neither of these things are bizarre either. Europe's politicians and economic policymakers have either been schooled in neoclassical economics and the efficient market hypothesis, or have been raised in market-worshipping conventional wisdom. They are cognitively incapable of understanding what's going on.

Also, Germany has been making xenophobic noises about the peripheral Euro countries since the 1990s. Now this crisis can be used by them to validate their claims back then that the Euro should not have incorporated the Mediterranean countries. Everyone is glossing over Germany's deficit and debt during the peak of the business cycle in the mid-noughties while unconstitutionally cutting the social safety net, and the fact that they used their muscle at the EU council to avoid being rapprimanded for their excessive debt.

The brainless should not be in banking -- Willem Buiter

by Migeru (migeru at eurotrib dot com) on Thu May 6th, 2010 at 09:02:46 AM EST
[ Parent ]
In that case Europe really is doomed, because Germany has chosen to identify with the bullies - ultimately at its own expense.

If the Mediterranean countries go, the Eastern European countries will go too, and eventually the markets will pick off the survivors one by one, leaving who knows what.

This is all good news for the neofeudalists but very bad news for everyone else.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 6th, 2010 at 09:16:29 AM EST
[ Parent ]
If the Mediterranean countries go, the Eastern European countries will go too

It appears the Eastern European countries are idiots, too (at least the first-in-class ones which successfully applied neoliberal shock therapy to get into the Euro).

As the Greek government awaits the first tranche of a €110 billion rescue loan, its Socialist counterpart in Slovakia has said it will not immediately contribute its share, citing doubts over Athens' ability to push ahead with necessary reforms.


The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Thu May 6th, 2010 at 09:20:56 AM EST
[ Parent ]
In that case Europe really is doomed

I would love to be wrong. But even Jérôme is expecting

the utter humiliation of Germany by the markets


The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Thu May 6th, 2010 at 09:23:20 AM EST
[ Parent ]
Not necessarily.

Spain is too big to fail.. no way the ECB allows it. They would buy debt, or do whatever it takes.

Europe is DE, FR, GB, IT and SP... if one falls, the other follow (maybe GB is a little bit more decoupled, but not that much). Therefore the big countries are not interested in accepting the attack.

They could fight over Greece, even Portugal, not Spain or Italy. The real tragedy would be not to take this as a clear warning that further financial integration is necessary.. and that reuglation of the European markets following the same structure of the financial regulation taking shape in the US is necessary here plus a serious reform of the bond market in Europe and credit default swaps in England.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Thu May 6th, 2010 at 12:35:50 PM EST
[ Parent ]

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