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ECB rate rise : the beginning of a new phase?

by eurogreen Fri Apr 8th, 2011 at 05:28:15 AM EST

This is more of an inquiry than a diary.

With today's rise of the repo rate from 1% to 1.25%, we seem to be exiting "emergency mode" and, according to the ECB's logic, returning to "business as usual". Inflation greater than 2% is anticipated, therefore, automatically, interest rates must rise. It now seems likely that they will continue to rise, tending to 2% before year's end.

Problem : most of Europe is enduring cost inflation, while wages do not follow; only Germany meets the standard criteria for increased interest rates.

Worse : the distressed nations (Greece, Portugal, Ireland) will be further stressed by rate increases. To say nothing of distressed mortgage holders...

The new phase would seem to spell disaster for debtors (individual or governments), for whom inflation would seem their best hope of long-term solvency.

This seems prima facie evidence that the ECB is the Bundesbank by any other name... and smells as sweet.

But perhaps There Was No Alternative?

Discuss.

front-paged by afew

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Explaining the world financial meltdown : a novel approach

by eurogreen Mon Dec 27th, 2010 at 05:48:13 AM EST

I'm sure we all have moments of despair when we listen to broadcast news, or read mainstream newspapers, explaining sententiously how financially ill-disciplined countries must pay for their prodigal ways, and how we must sacrifice more virgins to appease the angry gods of the Market.

A recurring theme at the European Tribune is how we can help to break through this "pensée unique", the "There Is No Alternative" syndrome, and implant alternative explanations in public consciousness. In order to, one supposes, mobilise civil society to pressure the Wise Heads who govern us into stopping the madness.

Jake's Financial Meltdown card game is a fabulous idea, but with, I would expect, a rather limited audience. ET itself as a think-tank / pressure group / e-zine is an ongoing subject...

But, personally, on a good day I am barely able to understand the economic discussions here, let alone usefully contribute. What could I do to help progress public awareness?

The other day, an idea for a novel popped into my head. (I have had a couple of tries, but never finished one yet. Perhaps this will be the one.) The germ of the idea is shamelessly derivative of a certain ongoing news phenomenon, as you will see.

My future novel goes something like this : one member of a small clique of progressive thinkers becomes depositary of a document dump from a whistleblower. This person, an insider in international finance, has accumulated damning documentation of financial skulduggery, involving

[INSERT HERE : laundry list of everything that's wrong with the international financial system].

frontpaged - Nomad

Read more... (120 comments, 682 words in story)

Carbon pricing in Australia

by eurogreen Thu Sep 30th, 2010 at 08:11:53 PM EST

A quick note to provoke thought and discussion, about perhaps the biggest challenge facing mankind over the next couple of decades.

There is surprisingly wide concensus among Serious People, all over the world, that putting a price on carbon is both necessary and urgent, in order to mitigate the risks of runaway climate change. (The fact that the US Senate is not part of this concensus, is both unsurprising and a major obstacle.)

This concensus notwithstanding, both major parties in Australia (Labor and the Liberal/National coalition) went into this month's elections with stated policies of no carbon pricing.

This is astonishing, for a number of reasons :

  • Australia is on the bleeding edge of climate change. Its extensive agricultural sector is in decline, partly because of unsustainable land management, but partly from demonstrable effects of global warming. The major cities now all have expensive, energy-hungry desalination plants in operation or in construction, because of the dramatic decline in water resources.
  • Climate change was the major political issue in the previous legislature. Public opinion was (and is) in favour of urgent action, including carbon pricing. Industry lobbied against it, but was expecting and preparing for it.

Kevin Rudd's Labor government prepared legislation on carbon pricing, but could not find a majority to approve it in the Senate. They needed the support of either the Greens or the right-wing opposition. Their proposal was too weak to win Green approval; thus, they counted on the Opposition accepting the inevitability of carbon pricing, and letting it through.

However, climate change was the reason that the leaders of both major parties got rolled, in the year before the election. When Coalition leader Malcolm Turnbull staked his leadership on allowing the legislation to pass, he lost to "climate  sceptic" Tony Abbott. Then, after Rudd ignominiously shelved the whole question until after 2012, he was ousted in favour of Julia Gillard, who pledged that she would be introducing no carbon taxes.

At the time, I interpreted this as a heavy defeat for the fight against global warming, not only for Australia but internationally. But democracy is a funny old thing...

In the event, neither party won a legislative victory: after a week of horse-trading, Gillard patched up a majority with three independents and the one Green MP in the Lower House.  In any case, she does not control the Senate : the Greens were the big winners there, and now hold the balance of power. This means that all legislation requires Green approval (or that of the Opposition) to be passed.

 Interestingly, the agreement between Gillard and the Greens is very succinct, and contains very few guarantees : they will vote confidence and supply, and on everything else they will consult. They are holding the whip hand. Let's hope they play their position wisely.

So, why did Labor back away from climate change legislation? Why did the Coalition assume the "skeptic" stance?

It is not out of the question that both were bought off by industry. Australian politics can be extremely raw and crude, and corruption is endemic.
But as far as I can tell, both parties were pandering to supposed popular sentiment against any increase in taxes. If so, they badly underestimated the intelligence of the voters.

The Greens have imposed the creation of a climate change committee, which will prepare pricing options. Clearly, the Greens will be pushing for legislation as quickly as possible, and they have the means to impose it.

This is a complete turn-around with respect to the prospects of international agreement. A decade ago, Australia was Bush's sole ally in opposing climate change action; this was a natural position for them, as an extractive economy, they saw no reason to be on the leading edge of economic sacrifice (this position has since been inherited by Canada). After tasting the reality of global warming, decisive action seemed possible, then impossible, now possible again...

There is a distinct perspective of Australia joining the leading nations (notably Europe and Japan) on climate action. This could have far-reaching consequences on the possibility of moving forward internationally.

So, what's the moral of the story? The stupidity of politicians should never be underestimated. Especially when they are Australian politicians.

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