Architects of a currency in crisis

Date: 30-12-2011
Source: Reuters

Ten years ago Saturday, the European Union celebrated the launch of the first euro coins and notes with fireworks, parties and solemn speeches.

Today, several members are on the edge of bankruptcy. First-world Europe is reduced to asking the IMF and China for help. The euro itself is at risk of unraveling.

How could it all have gone so wrong?

In a series of interviews with architects of the euro – a former president, a former prime minister, two former finance ministers, a former central banker, a former EU commissioner and a former EU Affairs minister – common explanations emerged.

The single currency would not have sparked the euro zone debt crisis, they argued, if the pro-European dynamic that led to its creation had continued into its first decade. But instead of launching an economic and political integration of Europe, the low interest rates and easy money that arrived with the euro led peripheral states on a path of profligacy, widening the gap with frugal, export-oriented economies of the north.

Alles Gute im Neuen Jahr! A Prosperous New Year!

Wir danken unserer Community für Ihr Interesse und wünschen in einem dem Höhepunkt der Krise zustrebenden Neuen Jahr viel Gelassenheit, Mut, Zivilcourage. Und Fähigkeit zu unterscheiden zwischen Scharlatanen, Realitätsverweigerern, Schönfärbern und Realisten!

Thanks to our community for your interest. We wish you for the New Year – where we will be approaching the peak of the crisis – calmness, mindfulness and moral courage. And the ability to differentiate between charlatans, people denying reality, palliators and realists!

„Only what you don’t know can hurt you!“

„Krise“ – das ist das Schlagwort für 2011:

Krise ist aber nicht anonym, sondern beginnt auch bei mir selbst:

War nicht auch ich in meinem Denken und Handeln zumindest manchmal zu sehr auf mich selbst fixiert?

Bin ich damit nicht Teil jener Haltung geworden, die rein wirtschaftliche Kenndaten und Eigennutzen als alleinige Unterscheidungskriterien zwischen gut und schlecht heranzieht?

 „Schuldenkrise“ – ein häufig verwendeter Begriff – anders gedeutet:

Deepening Crisis Over Euro Pits Leader Against Leader

Date: 30-12-2011
Source: The Wall Street Journal

BERLIN—On a chilly October evening in her austere chancellery, Angela Merkel placed a confidential call to Rome to help save the euro.

Two years after the European debt crisis erupted in little Greece, the unthinkable had happened: Investors were fleeing the government debt of Italy—one of the world’s biggest economies. If the selloff couldn’t be stopped, Italy would go down, taking with it Europe’s shared currency.

Her phone call that night to the 16th-century Quirinale Palace, once a residence of popes, now home to Italy’s octogenarian head of state, President Giorgio Napolitano, trod on delicate ground for a German chancellor. Europe’s leaders have an unwritten rule not to intervene in one another’s domestic politics. But Ms. Merkel was gently prodding Italy to change its prime minister, if the incumbent—Silvio Berlusconi—couldn’t change Italy.

Her impatience shows the extent to which Italy’s woes undid Europe’s strategy to fight the crisis. Until then, Europe had followed a simple formula to preserve the euro: The financially strong would save the weak. But Italy, with nearly €2 trillion, or about $2.6 trillion, in national debt, was simply too big to save.

Heterodox economics: Marginal revolutionaries

The crisis and the blogosphere have opened mainstream economics up to new attack

Dec 31st 2011 | The Economist AUBURN ALABAMA, CHARLESTON SOUTH CAROLINA AND ST CROIX | from the print edition

 

POINT UDALL on St Croix, one of the US Virgin Islands, is a far-flung, wind-whipped spot. You cannot travel farther east without leaving the United States. Visitors can pose next to a stone sundial commemorating America’s first dawn of the third millennium. A couple named “Sigi + Ricky” have added a memento of their own, an arrowstruck heart scrawled on the perimeter wall in memory of “us”.

Warren Mosler, an innovative carmaker, a successful bond-investor and an idiosyncratic economist, moved to St Croix in 2003 to take advantage of a hospitable tax code and clement weather. From his perch on America’s periphery, Mr Mosler champions a doctrine on the edge of economics: neo-chartalism, sometimes called “Modern Monetary Theory”. The neo-chartalists believe that because paper currency is a creature of the state, governments enjoy more financial freedom than they recognise. The fiscal authorities are free to spend whatever is required to revive their economies and restore employment. They can spend without first collecting taxes; they can borrow without fear of default. Budget-makers need not cower before the bond-market vigilantes. In fact, they need not bother with bond markets at all.

An Economics Columnist Peers Into the Future

Date: 29-12-2011
Source: The Wall Street Journal

Every so often, an economic columnist is asked: What surprises do you anticipate in the coming year? And the columnist replies, smiling to avoid seeming snarky: If I anticipated them, they wouldn’t be surprises.

A better question is this: Where is the conventional wisdom most likely to be wrong?

The consensus is that the U.S. economy will finish 2011 with a fourth quarter much stronger (perhaps 3.25% at an annual rate) than the third (1.8%) but will grow too slowly next year (perhaps 2.25% in the first quarter) to bring unemployment down quickly. Although the jobless rate fell 0.4 percentage point in November, a decline of nearly 600,000 people, the consensus is that it will decline only gradually, if at all, from today’s 8.6%, or 13.3 million people, during 2012.

So what could make the year turn out better?

For the past year and half, the U.S. has been caught in a tug of war. On one side is the economy’s natural resilience. On the other are the long-lasting effects of a burst credit bubble and some bad luck—the oil-price spike provoked by the Arab Spring, the supply-chain disruption following Japan’s earthquake. At the end of 2010, the economy’s resilience was winning. In 2011, it gave ground.

Die Bilanz: Eine Lachnummer namens Sparprogramm

Nun hat endlich Österreichs bester Wirtschaftsjournalist unsere besorgniserregenden Berechnungen aufgegriffen! (hfk)

28.12.2011 | 18:18 | von Josef Urschitz (Die Presse)

Die gute Nachricht: Die zwei Milliarden für das Sparpaket lassen sich locker ausgabenseitig auftreiben. Die schlechte: Wir werden für die Sanierung des Budgets sehr viel mehr Geld benötigen.

Die Regierung hat sich jetzt also die Einsparung von (oder, was wahrscheinlicher ist: die Belastungserhöhung um) zwei Mrd. Euro pro Jahr vorgenommen. Sie weiß aber, wie nicht anders zu erwarten, noch immer nicht, wie. Um diesen Missstand zu beseitigen, sollen bis Mitte Jänner die Köpfe von fünf Arbeitsgruppen rauchen.

Die sind das Erste, was eingespart werden kann. Das der Kanzlerpartei ja nicht ganz fernstehende Wirtschaftsforschungsinstitut (Wifo) hat sich dieser Mühe schon 2010 unterzogen (Aiginger, Schratzenstaller, „Budgetkonsolidierung als strategische Aufgabe“) und dabei ein ausgabenseitig kurzfristig zu realisierendes Einsparungspotenzial geortet, das größer als der genannte Konsolidierungsbedarf von zwei Milliarden ist. Durch Maßnahmen wie Ausnutzung der natürlichen Fluktuation in der öffentlichen Verwaltung (bis zu 1,1 Mrd. Euro), Durchforstung von Unternehmensförderungen (0,9 Mrd. Euro), Effizienzsteigerungen im Gesundheitswesen (300 Mio. Euro), rasch umsetzbare Maßnahmen etwa bei ÖBB-Pensionen (300 Mio. Euro) etc. könnte ein jährliches Einsparungspotenzial von 1,9 bis 2,9 Mrd. Euro realisiert werden, heißt es darin. Und zwar innerhalb von ein bis zwei Jahren – ohne Steuern zu erhöhen.

European Bank Worry: Collateral

Date: 28-12-2011
Source: The Wall Street Journal

LONDON—Even after the European Central Bank doled out nearly half a trillion euros of loans to cash-strapped banks last week, fears about potential financial problems are still stalking the sector. One big reason: concerns about collateral.

The only way European banks can now convince anyone—institutional investors, fellow banks or the ECB—to lend them money is if they pledge high-quality assets as collateral.

Now some regulators and bankers are becoming nervous that some lenders’ supplies of such assets, which include European government bonds and investment-grade non-government debt, are running low.

Euro-Krise: Monti setzt zum zweiten Reformschlag an

Handelsblatt.com, 29/12

Vergangene Woche hat Italiens neuer Ministerpräsident Monti sein Sparpaket durchs Parlament gebracht. Nun soll im Januar der zweite Akt folgen. Seine Regierung plant Reformen im Sozialwesen und auf dem Arbeitsmarkt.

Italiens Ministerpräsident Mario Monti zeigt auf einer Grafik den Zinsaufschlag italienischer Staatsanleihen gegenüber deutschen Bundesanleihen. Quelle: dpa

RomItaliens Ministerpräsident Mario Monti hatte zu seiner letzten Pressekonferenz in diesem Jahr eine ernüchternde Grafik mitgebracht. Die Kurve, die er am Donnerstag präsentierte, zeigt den Zinsaufschlag gegenüber deutschen Bundesanleihen, den Italien für seine Staatsanleihen zahlen muss. Sie steigt über das Jahr 2011 steil an.

In den vergangenen Tagen hat sich die Lage allerdings ein bisschen entspannt. Am heutigen Donnerstag sanken die Zinsen bei der Versteigerung italienischer Staatspapiere erneut. Italien verkaufte Anleihen mit dreijähriger Laufzeit im Wert von 2,5 Milliarden Euro zu einem durchschnittlichen Zinssatz von 5,6 Prozent, wie die Nachrichtenagentur ANSA berichtete.

Im vergangenen Monat waren für die Papiere noch 7,89 Prozent Zinsen fällig gewesen.

Trichet: A centralized Europe is a globalized Europe

Date: 28-12-2011
Source: Reuters By Jean-Claude Trichet

The views expressed are his own.

PARIS – Whenever people seek a justification for European integration, they are always tempted to look backwards. They stress that European integration banished the specter of war from the old continent. And European integration has, indeed, delivered the longest period of peace and prosperity that Europe has known for many centuries.

But this perspective, while entirely correct, is also incomplete. There are as many reasons to strive towards “ever closer union” in Europe today as there were back in 1945, and they are entirely forward-looking.

Sixty-five years ago, the distribution of global GDP was such that Europe had only one role model for its single market: the United States. Today, however, Europe is faced with a new global economy, reconfigured by globalization and by the emerging economies of Asia and Latin America.

It is a world where economies of scale and networks of innovation matter more than ever. By 2016 – that is, very soon – we can expect eurozone GDP in terms of purchasing power parity to be below that of China. Together, the economies of China and India could be around twice the size of the eurozone economy. Over a longer time horizon, the entire GDP of the G-7 countries will be dwarfed by the major emerging economies’ rapid growth.

‘It Is a Mistake To Pursue a United States of Europe’

Date: 28-12-2011
Source: SPIEGEL
Subject: Interview with Ex-German High Court Justice

In an interview conducted as he heads into retirement, German Constitutional Court Judge Udo Di Fabio explains why he believes the high court’s recent decisions on the European Union will not necessarily hinder further European integration and how he believes debates over possible changes to Germany’s constitution to strip power from Karlsruhe are „phoney.“

The Lisbon Treaty, which went into effect on Dec. 1 2009, represents the last major reform undertaken to the structures of the European Union. It was intended as a reform of institutions and procedures and to expand the EU’s competencies in ways that are effective and transparent without, as originally planned with the failed EU constitution, fundamentally changing them. Under the leadership of former German Federal Constitutional Court Judge Udo Di Fabio, who authored the decision, Germany’s high court approved the treaty as being constitutional, but also imposed the condition that the parliament in Berlin have greater participation in decisions made by the country at the EU level. Many politicians and journalists believe the ruling could hinder a future deepening of European integration.