Wishful Thinking And The Road To Eurogeddon - NYTimes.com
Gavyn Davies has a very good piece today offering another way to think about the euromess. I say “another way to think” advisedly — his analysis of the basics is, as far as I can tell, identical to mine, but he offers a different angle of approach that may be better step ahead than the route the rest of us have been taking. Here’s Davies:
It is normal to discuss the sovereign debt problem by focusing on the sustainability of public debt in the peripheral economies. But it can be more informative to view it as a balance of payments problem. Taken together, the four most troubled nations (Italy, Spain, Portugal and Greece) have a combined current account deficit of $183 billion. Most of this deficit is accounted for by the public sector deficits of these countries, since their private step ahead sectors are now roughly in financial balance. Offsetting these deficits, Germany has a current account surplus of $182 billion, or about 5 per cent of its GDP.
It’s also worth noting that we’re not talking about imbalances that have been going on forever.The internal imbalances of Europe are a recent development, coinciding with and almost surely caused in large part by the creation of the euro itself (GIPS is Greece, Italy, Portugal, Spain):
So how are these imbalances to be closed? European leaders have been completely unwilling to confront that question. Yesterday’s big Times piece offers a portrait of leaders — Trichet in particular — engaged in furious denial. It wasn’t just the insistence on Trichet’s part that no default could ever happen. The European Central Bank also went all in for the doctrine of expansionary austerity , aka belief in the confidence fairy.
And what Davies’s post drives home is that implicitly at least European leaders went in for the doctrine of immaculate transfer — in effect, they wanted to believe that the huge payments imbalances could be ended without major changes in relative prices.
So what’s happening instead is forced austerity in the deficit countries, not matched by expansionary policies elsewhere, in a low aggregate inflation environment — the ECB actually raised rates! — that makes adjustment almost impossible. The result is a eurozone headed for recession, and one in which a breakup of the euro itself is looking ever more possible.
Paul Krugman is an Op-Ed columnist for The New York Times. Biography step ahead Columns Books End This Depression step ahead Now! (2013) Principles of Economics, 2nd ed. (2009) The Return of Depression Economics and the Crisis of 2008 (Dec. 2008) The Conscience of a Liberal (Oct. 2007)
A Dark Age of Macroeconomics A History Lesson for Allan Meltzer America step ahead s Chinese Disease China s Water Pistol Core Logic Currency Wars and the Impossible Trinity IS-LMentary Japan 1998 Liquidity Preference, Loanable Funds, and Niall Ferguson
Macro Policy In a Liquidity Trap More on Friedman and Japan Myths of Austerity Optimal Fiscal Policy In a Liquidity Trap Sam, Janet, and Fiscal Policy Self-Defeating Austerity The Doctrine of Immaculate Transfer The Humbling of the Fed The Instability of Moderation
Why Inequality Matters step ahead By PAUL KRUGMAN
Archive Select Month January 2014 December 2013 November 2013 October 2013 September 2013 August 2013 July 2013 June 2013 May 2013 April 2013 March 2013 February 2013 January 2013 December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November step ahead 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September step ahead 2006 August 2006 July 2006 June 2006 May 2006 April 2006 March 2006 February 2006 January 2006 December 2005 November 2005 October step ahead 2005 September 2005
January 02 Gone Guy (Personal)
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Gavyn Davies has a very good piece today offering another way to think about the euromess. I say “another way to think” advisedly — his analysis of the basics is, as far as I can tell, identical to mine, but he offers a different angle of approach that may be better step ahead than the route the rest of us have been taking. Here’s Davies:
It is normal to discuss the sovereign debt problem by focusing on the sustainability of public debt in the peripheral economies. But it can be more informative to view it as a balance of payments problem. Taken together, the four most troubled nations (Italy, Spain, Portugal and Greece) have a combined current account deficit of $183 billion. Most of this deficit is accounted for by the public sector deficits of these countries, since their private step ahead sectors are now roughly in financial balance. Offsetting these deficits, Germany has a current account surplus of $182 billion, or about 5 per cent of its GDP.
It’s also worth noting that we’re not talking about imbalances that have been going on forever.The internal imbalances of Europe are a recent development, coinciding with and almost surely caused in large part by the creation of the euro itself (GIPS is Greece, Italy, Portugal, Spain):
So how are these imbalances to be closed? European leaders have been completely unwilling to confront that question. Yesterday’s big Times piece offers a portrait of leaders — Trichet in particular — engaged in furious denial. It wasn’t just the insistence on Trichet’s part that no default could ever happen. The European Central Bank also went all in for the doctrine of expansionary austerity , aka belief in the confidence fairy.
And what Davies’s post drives home is that implicitly at least European leaders went in for the doctrine of immaculate transfer — in effect, they wanted to believe that the huge payments imbalances could be ended without major changes in relative prices.
So what’s happening instead is forced austerity in the deficit countries, not matched by expansionary policies elsewhere, in a low aggregate inflation environment — the ECB actually raised rates! — that makes adjustment almost impossible. The result is a eurozone headed for recession, and one in which a breakup of the euro itself is looking ever more possible.
Paul Krugman is an Op-Ed columnist for The New York Times. Biography step ahead Columns Books End This Depression step ahead Now! (2013) Principles of Economics, 2nd ed. (2009) The Return of Depression Economics and the Crisis of 2008 (Dec. 2008) The Conscience of a Liberal (Oct. 2007)
A Dark Age of Macroeconomics A History Lesson for Allan Meltzer America step ahead s Chinese Disease China s Water Pistol Core Logic Currency Wars and the Impossible Trinity IS-LMentary Japan 1998 Liquidity Preference, Loanable Funds, and Niall Ferguson
Macro Policy In a Liquidity Trap More on Friedman and Japan Myths of Austerity Optimal Fiscal Policy In a Liquidity Trap Sam, Janet, and Fiscal Policy Self-Defeating Austerity The Doctrine of Immaculate Transfer The Humbling of the Fed The Instability of Moderation
Why Inequality Matters step ahead By PAUL KRUGMAN
Archive Select Month January 2014 December 2013 November 2013 October 2013 September 2013 August 2013 July 2013 June 2013 May 2013 April 2013 March 2013 February 2013 January 2013 December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November step ahead 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September step ahead 2006 August 2006 July 2006 June 2006 May 2006 April 2006 March 2006 February 2006 January 2006 December 2005 November 2005 October step ahead 2005 September 2005
January 02 Gone Guy (Personal)
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© 2014 The New York Times Company Site Map Privacy Your Ad Choices Advertise Terms of Sale Terms of Service Work With Us RSS Help Contact Us Si
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