Gideon Rachman on Europe and the eurozone

by on April 11, 2014 at 12:13 am in Current Affairs, Economics | Permalink

From a Gideon Rachman FT blog post, this is still my view as well:

1. As Kerin Hope, our Athens correspondent, makes clear in a fine post – the political situation in Greece is arguably deteriorating, rather than improving. What is true for Greece is true for Europe as a whole. The European parliamentary elections in May are likely to yield quite shocking results – with the rise of far-right and far-left parties in core countries, such as France. This could be destabilising, to put it mildly.

2. As I argued in a recent column, the real economy in important countries such as Italy is still in very bad shape.

3. The euro has been saved – for now. But the underlying structural problems of a common currency that is not backed by a political union are still unresolved. And not much closer to resolution, either.

None of that means that it is necessarily irrational to make a short-term bet on Europe. But anybody who thinks the euro-story is over, is likely to get a nasty shock at some stage.

I would again stress the point that the economics of the eurozone crisis are entirely solvable (though unpleasant).  It is managing the politics of so many disparate nations that makes it tricky, and it is not obvious whether this dimension of the problem truly has been solved.  And on the economics side, the eurozone is encountering deflation risk, and arguably the main problems are moving from the periphery to France and Italy.  If you don’t think Italy can resume normal economic growth anytime soon, it is not clear how any of the plans are supposed to end up working.

Here is a good analysis of the new Greek bond deal.

NK April 11, 2014 at 2:36 am

> I would again stress the point that the economics of the eurozone crisis are entirely solvable (though unpleasant).

Don’t try to hard as many of us aren’t at all interested. I for one cannot wait to see the darn place crash and burn!

dan1111 April 11, 2014 at 2:44 am

That’s not nice. Maybe you think the people who implemented and supported the policies “deserve it” in some sense, but it’s going to harm many who had nothing to do with it.

Pierre April 11, 2014 at 2:50 am

Why do you hate us?

Z April 11, 2014 at 8:59 am

We have an expression. If you see a Frenchman, beat him. He will know why.

Turkey Vulture April 11, 2014 at 9:23 am

The first time I heard that it was about Russians beating Bulgarians.

Z April 11, 2014 at 11:38 am

Me too. But, when in France…

Pierre April 11, 2014 at 9:43 am

Old joke. I’ve heard it better told about women. “Beat your wife, if you don’t know why, don’t worry she knows.”

Z April 11, 2014 at 11:39 am

A better version is:

Q: What do you tell a woman with two black eyes?

A: Nothing. You already told her twice.

I know, I know, that’s horrible.

ThomasH April 11, 2014 at 6:58 am

I don’t wish the Inhabitants of Euroland ill, but I do wish ill to those who have opposed the policies/governance structures that have prevented ECB from aggressively maintaining ngdp growth and those market participants who confused currency risk with country risk. .

Floccina April 16, 2014 at 10:19 am

+1

Anon. April 11, 2014 at 7:04 am

My father in Greece installed a bunch of solar panels a few years ago and signed a 20-year contract with the government-controlled power corporation to sell them the electricity they produced.

The other week parliament passed a law saying the contracts are null and void, and will be replaced by a new contract with a ~30% lower price.

He could try to use the courts but that would mean no payments for half a decade or more as he waits for the case to be resolved (the judiciary is still the most dysfunctional part of the bureaucracy), so it’s not really an option. This isn’t an isolated thing, it’s the expected course of action.

I don’t know how anyone expects a healthy economy to grow in a country entirely lacking in rule of law.

Benjamin Cole April 11, 2014 at 7:27 am

The euro and the ECB are an unmitigated disaster for Europe. There are some things more important than a peevish fixation on inflation, like, or maybe, prosperity.

The ECB is toying with some ugly scenes.

Italy, Portugal, Greece and Spain would be better off quitting the ECB and printing their own currency and lots of it. Come to think of it, the Fed should show some spine and resolve about generating growth too.

The people screaming about “financial instability” (they used to scream about hyperinflation) are making huge mistake. The instability is generated from weak economies, not boom times.

Bring back the boom times, we need ‘em.

Yancey Ward April 11, 2014 at 11:32 am

Italy, Portugal, Greece and Spain would be better off quitting the ECB and printing their own currency and lots of it

So why don’t they do that? Why do they try so hard to remain in the Euro?

prior_aapproval April 11, 2014 at 7:54 am

‘I would again stress the point that the economics of the eurozone crisis are entirely solvable’

So, you have become a heretic to the formerly fashionable eurogeddon club?

Because when I saw a link to Ambrose Evans-Pritchard (admittedly, from a fellow member of the GMU econ faculty), the first thought was that it was an update to his former Telegraph reporting about Germans rejecting Greek euro bills – easily five years ago.

Just admit that the political economy of the eurozone make no real sense to the chairman of the Mercatus Center, and be done with it – it isn’t as if the donors to the Mercatus Center care all that much about the eurozone (apart from a never ending stream of predictions of its inevitable failure, of course).

Or just link to this article in the Guardian – http://www.theguardian.com/business/2014/apr/09/greek-return-financial-markets-attracts-investors

Greece is still a risk, and if one waits long enough, the euro too will join history’s list of failed currencies (though whether it will last longer than the Czechoslovakian koruna- either its first or second incarnation, before its apparently final dispatch to history’s graveyard – http://en.wikipedia.org/wiki/Czechoslovak_koruna – is another subject) . However, pandering to public prejudice among a supposed group of supporters is a fine example of how groupthink grows.

dan1111 April 11, 2014 at 8:17 am

Most self-parodying commenter on the web. No one gives a hoot about your knowledge of the Mercatus Center organizational structure, or the fact that somebody sits in the Wilbur G. Stromblus Chair of something or other. We read this site because of the actual topics discussed, not the conspiratorial meta-story of what every single blog post implies about the poster’s motivations and who funded whom.

prior_approval April 11, 2014 at 9:05 am

Not even close – my scorn about eurogeddon as presented here is long running.

And the fact that Prof. Cowen has moved from faculty director to (apparently) both faculty director and chairman of the Mercatus Center is undoubtedly important to at leat the person whose prestige (and, one reasonably assumes, pay) has increased – though why you are so dismissive of Prof. Cowen’s rise in public distinction (he is a NYT columnist too, after all) is hard to understand.

That Prof. Cowen was named the ‘Holbert Harris chair in the Economics Department’ actually says something to anyone with awareness of GMU’s development. And that he ‘follows Virginia’s first Nobel Laureate James Buchanan, who held the chair for the past 16 years.’ is also relevant to the GMU community – http://gazette.gmu.edu/articles/1900

But it isn’t as if anyone expects MR commenters to actually know anything about the university that Prof. Cowen has been associated with for almost 3 decades.

‘We read this site because of the actual topics discussed’

Actually, reading this site with an awareness of what is happening in the careers of its two owners is even more rewarding. But then, that again assumes at least some connection to GMU, either as a student, an alumni, or a former employee.

dan1111 April 11, 2014 at 9:58 am

You are wrong: it is wholly irrelevant. It is irrelevant even if the content of this site is driven solely by the machinations of funders and faculty politics, as you seem to believe. It is irrelevant because this is unknowable, unprovable, and does not affect the merits of the positions taken at all. Ideas stand or fall on their own.

J April 11, 2014 at 10:16 am

I have to respectfully disagree there. Bounded rationality and all that.

I don’t have the time or ability to fully evaluate all the arguments I might come across on a daily basis. Once you find out that somebody is regularly making sloppy or even deliberately misleading arguments to suit their own biases or interests, it’s a very helpful heuristic to deeply discount everything they say from there on out. To take just one example, a good pro-tip is to pretty much never trust the WSJ op-ed section. I think Art Laffer is the worst offender of all. He once penned an op-ed showing that deficits cause recessions because deficit/GDP rises during recessions. We’re talking about a guy with a PhD in economics who’s never considered that the causation could run the other way or that denominators matter? Please. Do yourself a favor and don’t listen to Art Laffer.

dan1111 April 11, 2014 at 10:30 am

@J, you do have a point. But you are still talking about a judgement based on the quality of the ideas. You don’t like the WSJ because they (in your opinion) have a track record of presenting poor arguments–not because of an imagined conspiracy in their management or their secret motivations. Maybe there is a conspiracy, but really that isn’t the thing that matters; what matters is whether their ideas hold up.

J April 11, 2014 at 12:14 pm

Admittedly this whole beef that P_A has with TC and AT is out of my depth, but I guess if P_A were correct that they are bought and paid for or whatever, I would have to discount their arguments. Plus it would just make me upset being duped.

prior_approval April 11, 2014 at 2:23 pm

‘Admittedly this whole beef that P_A has with TC and AT is out of my depth, but I guess if P_A were correct that they are bought and paid for or whatever, I would have to discount their arguments’

Let’s see how long this text and link lasts – ‘Bartley J. Madden, (e-mail address deleted) is a Heartland Policy Advisor whose current research focuses on FDA reform, corporate governance, and accounting/valuation issues.

Since his retirement as a Managing Director of Credit Suisse in 2003, Madden has written articles that developed a market-based system for access to not-yet-FDA-approved drugs. In May 2007 Heartland published a booklet, More Choices, Better Health: Free to Choose Experimental Drugs, that summarizes this work.’ http://heartland.org/policy-documents/biography-bartley-j-madden

When it was posted previously, it didn’t last 15 minutes, even after the personal e-mail address was deleted – http://marginalrevolution.com/marginalrevolution/2014/02/public-choice-outreach-2014.html

Though to our hosts’ credit, the comment about warranted cynicism towards ‘unsolicited recommendations’ was left untouched.

Ask andrew’ about how deletion works – he has seen it action, and is certainly not someone that supports any of my perspectives concerning this web site.

prior_approval April 11, 2014 at 2:34 pm

11 minutes and counting – another check tomorrow morning, my time.

prior_approval April 12, 2014 at 5:46 am

And still here – which is nice, because previously, any mention of who sponsored the chair held by one of this site’s owners was promptly deleted.

It is completely normal for a holder of a chair to reflect the interests of the person who sponsored it, by the way. And it is completely normal that the holder of such a chair would then be involved in public discussion of the work that the chair’s sponsor intended to result such sponsorship.

What was unusual, however, was the scrubbing of any mention of a chair’s sponsor by the holder of a chair named after the sponsor, as happened back in a thread involving public choice.

Quite possibly, someone with a bit more experience in PR pointed that out.

Z April 11, 2014 at 8:23 am

The problem with Europe is that it has very few Europeans. It has scads of Italians, Greeks, Germans, French, Spaniards and so forth, but precious few Europeans. It faces the same problem as the Habsburg Empire faced. Its reason to exist is weaker than the reasons to break it apart. That’s what makes the line, “I would again stress the point that the economics of the eurozone crisis are entirely solvable (though unpleasant)” so entertaining. The problems of Detroit are solvable too, but shipping 400,000 residents to Canada would be “unpleasant.”

I’m hoping the “far right” sweeps to victory. The reporting will be great fun to watch.

dan1111 April 11, 2014 at 10:16 am

I think U.S. conservatives should be slightly wary of “far right” European parties. Being hated by all the right people is not enough to make them good.

Z April 11, 2014 at 11:43 am

America really has no Right, at least nothing analogous to the European Right. In America we have Fanatics, C&E Liberals and a whole bunch of people who grudgingly go along.

Pierre April 12, 2014 at 5:19 am

Funny how many people in Europe say that the US has no Left.
I guess the US has both no heirs of fascism, and no party to oppose “capitalism”.
The two-party system is so boring.

Joe in Morgantown April 11, 2014 at 10:58 am

To be fair to the Austro-Hungarian, it was a great improvement on many of it’s successors.

prior_approval April 11, 2014 at 10:26 am

‘You are wrong: it is wholly irrelevant.’

I’m quite confident (though open to correction) that Prof. Cowen attended public events at the Harris Theater in the 1980s – it was the premier public space for presentations at GMU during that time, after all.

It is always fascinating to see how people who apparently weren’t members of a specific academic community – either as students, alumni, or employees – dismiss what that community considers important. After all, the sucessor to a position previously held by the first recipient of a Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel at GMU is not exactly a minor figure, at least within the GMU Econ Department, not to mention the broader GMU community. You are reading his web site, after all.

A community, apparently, to which you have no connection at all.

dan1111 April 11, 2014 at 10:36 am

You still haven’t demonstrated why the machinations of the GMU economics department are the essential context for understanding Tyler’s views on the Eurozone (and every other topic on this site).

prior_approval April 11, 2014 at 10:59 am

‘why the machinations of the GMU economics department ‘

How easily some seem to shift between the Mercatus Center, where Prof. Cowen is the apparent chairman and faculty director, and the GMU Econ Dept., where Prof. Cowen is the Holbert C. Harris Chair of economics. They aren’t the same thing, after all.

‘Tyler’s views on the Eurozone’

Why worry about wondering about those views when ‘eurogeddon’ and ‘marginal revolutiuon’ are so easily searchable at google? Like this, from only a bit more than 14 months ago – ‘Eurogeddon is here, as a variety of countries have situations worse, in relative terms, than the Great Depression of the 1930s.’ http://marginalrevolution.com/marginalrevolution/2013/01/ryan-avent-is-correct-about-draghi-and-the-eurozone.html

Unsurprisingly, if you follow that link, you can see my response to the idea of ‘eurogeddon.’

chuck martel April 11, 2014 at 10:46 pm

There’s a term in The Diagnostic and Statistical Manual of Mental Disorders that describes your condition but I can’t remember exactly what it is.

prior_approval April 12, 2014 at 5:54 am

Survivor’s guilt?

After all, I live in a country with essentially universal health care, six weeks vacation for employees, effective unions, and a politically active environmental movement that reflects the majority will of the citizenry.

All of these are things that the chairman of the Mercatus Center is, if his writing here is to be believed, does his best to ensure do not become part of the political economy of the U.S.

Mark Thorson April 12, 2014 at 9:16 pm

PTS Type III

Floccina April 16, 2014 at 10:18 am

I just cannot believe that Greece is still on the Euro! What are they thinking?

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