Krugman's Continuing Vacation from Euro-Split, My First NY Times Op-ed
The objection to full monetary union is obviously that the various prospective members have economies and political characters and tempers too varied to be accommodated in a single institution of economic decision. This seems to me not an opinion but an axiom. It is political reality.
There is no reason why the EU cannot function with respect for this ignored realism, with a euro that includes national currencies. A new monetary union could include a variety of national currencies flexibly accommodating the needs of their own economies and their own trading situations. Their values could change with respect to the euro just as the euro does with respect to the dollar, sterling and other currencies. The euro would vary according to the trading position of EU members, all of them members of the European Central Bank.
Today (June 26) the European Council under Herman van Rompuy has published a new proposal for European monetary reform. It rests on continued monetary union with an exclusive euro—source of the present crisis. I would think this union should be reformed as in the paragraph above. It would become a closely coordinated group of currencies bound together as a single international trading currency, its members mutually guaranteeing bank deposits and providing common debt insurance, under a regulatory system preventing the practices that created the present crisis but with sufficient internal flexibility to accommodate inevitable national divergences. With that, an integrated policy framework would be essential, able to produce a common euro zone policy to promote “sustainable growth, employment and competitiveness” (quoting the van Rompuy document).
Euro Must Have Reform, Not Americanization - William Pfaff, June 26, 2012.
Truthdig.com / Chicago Tribune
5. Split the eurozone in two to stop currency flight
My approach is designed to allow an orderly transition of the eurozone to two or more regions, and prevent the speculative capital flow, that could force a country out of the eurozone.
These new regions would have their own central bank, monetary policy, and currency unit. All euros would get treated equally and get exchanged for a basket of the new currencies at an agreed and fixed exchange ratio - the paper describes how this ratio gets set. So everyone would receive a basket of the new currencies, and it would be up to them to decide what currencies to exchange them to. The settlement value of existing euro-denominated contracts and debt could be determined by the exchange ratio and the relative value of the new currencies.
Post-separation, competitiveness could be restored by the exiting country or countries managing a gradual devaluation, using higher nominal interest rates and inflation. Higher interest rates prevent a sudden currency collapse and stops currency flight. In addition, any renegotiation of, or default on, debt could be managed quite separately. And, unlike with a crash exit, savers in the exiting countries are not penalised and speculators are not rewarded and the process can allow time for migration to the new currency regimes. Because it reduces the risk of speculative capital flows, the "Newney" approach - New Euro-White (New and New Euro-Yolk (Ney) - could also support the eurozone remaining together.
The situation, or should I say current crisis, with Greece and the Euro, is similar. Since Greece unlike Latvia currently has no currency of its own, it would be far more disruptive for it to leave the Eurozone than it would be for smaller fixed-rate countries hoping to join the Euro to suddenly start printing more of their own money again. But the reasons and need to do for each of these countries is the same. Slashing wages (without corresponding drops in prices), gutting or dismantling entirely social programs, selling off of state assents and protected industries, it is a economic forecast of unending miserly coupled with periods of unbelievable grief into the horizon as far as one can see.
While I am not trying to say Greece should stay on the Euro or should not, or that Latvia should abandon a fixed-exchange rate or should not, what I find most insane about the so-called Euro-crisis is the lack of alternatives ever being mentioned, and that is par for the course. These vitally important decisions will be made primarily by banks, or by one or two large banks according to what is in THEIR best interests, not what is in the best interests of the countries or even of Europe and the whole “European Union Experiment” at large.
As I said, I tried to get an idea about a mythical “European Identity” and I really did not find much to support the idea that there really is one at this point in time. With many different languages and cultures, many of which have until recently been at war with each other as often as not, perhaps that should not be surprising. But there is not much to suppose that northern countries are going to be willing to fork over their surpluses (if any country can even come up with a surplus these days) in large amounts for the benefit of poorer countries in the EU. At least not in the way which countries subsidize their poorer regions. The investment and stabilization funds are a fraction of what they would need to be to hold the region together under a common currency, and there is little political support for creating new Euro-wide structures to even out the ever widening disparities. And “disparities” does not even begin to measure up as a word. Complete and devastating collapse is in the pike not only seemingly for Greece, but possibly Italy, Portugal, Spain, and beyond.
The option of the Baltic countries, which as I said have micro-economies, for joining the Euro was not the only option considered at the time. The idea of these countries banding together and issuing a common currency of their own together was also discussed, and eventually abandoned.
Whether Greece stays in the Eurozone or goes, the entire crisis is treated as this state or that states problem and not the under-lying cause of possibly incompatible economies all trying to share a common currency which is basically killing off economically not one region here and there, but wrecking economic chaos across the zone. Without these poorer countries in the Euro, the Euro itself would skyrocket in value much as the Swiss Franc has recently. But an orderly exit of more than one country from the Euro at once combining their currencies into a 2-speed Euro 1 and Euro 2 or put out combined Euro 2 bonds for Euroland nether-regions, I find is not even being discussed publicly. And as mentioned already, that is by no small measure because the publics involved will have absolutely no say in it whatsoever. But it should not be that way.
Jared DuBois - May 29, 2012, Truthrevival.org
If I go there will be troubleand if I stay it will be double
Excerpt from "Should I Stay Or Should I Go", by The Clash
Ok, so maybe it wasn’t an Op-ed. But it COULD have been, say if I were a former US President, or otherwise notable notable, and was not limited to 1500 characters. But it was a letter to the New York Times, or rather a comment on a blog run by the NY Times, but if I want to call it an Op-ed published by the NY Times, it is probably about as close as I will get to one, at least for the foreseeable future.
The reason I wrote it was because the BBC had mentioned as a potential way out of the "Euro crisis" a breakup of the Euro-zone into Euro-zones, which I did a few days before, and I thought it would be a good place to drop a hint about that article for Paul Krugman to write about that, since all “Serious” people seem to read what he says, if only so they can fume about it, almost as much as the President of Estonia might. That ballistic twitter blast of Krugman by Estonia’s President, Toomas Ilves, caught my attention which led me to read the article I was commenting on. Having followed Estonian media (in English) for years, it was surprising because in interviews with him in English, he seemed rather progressive, at least in terms of the Estonian political spectrum. But man, was he pissed at Krugman.
@IlvesToomas
toomas hendrik ilves
@IlvesToomas
toomas hendrik ilves
@IlvesToomas
toomas hendrik ilves
@IlvesToomas
toomas hendrik ilves
So I read the article which caused so much Estonian Presidential fury, and thought to add some perspective, thinking if I dropped a hint about Euro-zones vs. a single Euro-zone, and maybe if 5 billion other people also did, Krugman might write about that possibility and all "Serious People" would also get yet another reason to rant on Krugman.
I did not think the NY Times website would publish it, but they did, to no discernible effect. Though Krugman still has not lent his Nobel Prize winning "Seriousness" to that option, "Eurozones", at least the BBC had that option on their Europe front page for over 3 weeks via their article on ways the Eurozone could breakup. William Pfaff today also talked about that possibility on something called The Chicago Tribune. If Krugman does not read the BBC's Europe page, perhaps he will take a gander at that article.
My wonderful 1499 character comment is below in its glorious twitterized form (and to & etc.).
Though it appears my mention of a Latvian 50% wage cut (maximum) was higher than the EU estimates of a lower overall of wage reduction, higher paid salaries were cut higher than the average, and that percentage I read mentioned in more than one article on an Estonian blog. And if you can’t trust Estonian blogs, then who can you trust?
As I said in my post, my biggest problem is that there is (or at least was) not even any public discussion of anything other than Greece must stay in the Euro-zone and suffer excruciating hardships for years to come, or leave and the whole of the Euro-zone countries must risk similar calamity spreading and panic. Either stay with us and suffer greatly or go it alone and suffer even more. I am sure other options are being considered. The BBC’s “5 ways the Eurozone Could Break Up,” had that option and, I would estimate, at least 4 other ways it could be done. But the public in all of these countries are kept in the dark about them as much as the US public is about what trade agreements are putting on the table these days.
While I am not convinced as the conspiracy minded Greg Palast is that this “Euro crisis” was intentional all along ('The Euro is a Big Success - No Kidding', The Guardian, June 26, 2012), it has made a lot of banks rich. And generally having taxpayers having to foot the bill for bank's bad loans, especially foreign banks, for decades to come, means they will stay very rich, and keep doing the same thing, even though the public will suffer greatly.
That the public is not reading that there are other alternatives on how to manage a Euro-breakup is not surprising because as I mentioned, they will have absolutely no say about it anyway. Why bother them about it? But it would be nice if they were, if not consulted, at least clued in as to what their governments might be considering to get past this never ending state of panic which is destroying millions of peoples livelihoods, wages, potential retirement funds turning to vapor, and crumbling infrastructures (sound familiar?) as much as the Great Recession of 2008 did. For them the collapse never ended.
And for the Baltic countries, Estonia, Latvia, and Lithuania, things are still tough, though as Krugman has learned they don’t necessarily take kindly to that fact being blasted in the NY Times. Though NY Times readers have expressed irritation at his continuing references to these countries, it has at least kept me from being bored (since I studied about them, lived in them, and still follow their policies) until he actually might mention breaking up the Euro-zone into regions. If or when he does I can finally unbookmark his blog because the NY Times paywall is not letting me read them all anyway. Seeing headlines which I cannot read the articles to is why I stopped reading the Baltic Times online, or at least try not to.
In regards to his other posts about the region, one of the reasons why Lithuania was not as badly affected is because during the “Economic Shock Therapy” of the 1990's, Lithuania did not privatize as much as Estonia, and Latvia, and more small farms and related types of businesses were protected. That probably gave them more of a cushion during the 2008 collapse. Estonia, which lost most all of its small farms, was the more dependent upon newer industries and the “New Economy.” Being able to grow your own food is almost as good as printing your own money. In a way it probably is.
Latvia as in most cases, as well as geographically, was in the middle. It was in-between the extreme privatizations of Estonia and the cushioned shock therapy of Lithuania. As one of the other NY Times commentators mentioned, the Baltic Countries are so small, the closures or openings of one or a few large factories can skew the economic data so much as to make government policies almost irrelevant, or at least not pertinent to the real factors which changed the unemployment rates. As one of my instructors back then liked to concentrate on the effect of company towns, ones dependent upon a single factor, these countries are so small that their company town closures can skew the data for the whole country.
But I am sure the Baltic countries will do fine. It is in the interests of the neo-liberals that their favorite poster children survive long enough to beat all other EU countries over the head with. To say that if they too would only embrace austerity wholeheartedly, then everything will be fine. All it takes is for one Romney-type billionaire financier to step in at any time to save their day. For those larger countries who have embraced austerity and it wasn’t fine, then they will continue to suffer until the Euro is seriously overhauled to benefit its poorest members of the Euro-zone as much as it has benefited its wealthiest, keeping an exchange rate, in my opinion already far too high, from going even higher.
The flight of people out of the countries, as Krugman mentioned, has also been a release valve because if the jobs have gone, and many of them have, it is easier when the people go as well. Emigration had always been an issue, at least since I started studying them in 2004, but it has vastly accelerated because of this latest crash. Having long considered the devastating effects of the “brain drain” on third world countries, it is disheartening to see it playing out within the EU. Such movement might be inevitable among the best and the brightest, but many, just about any who could get out to a better developed region, I am sure has probably been considering it. And that potential, for now quite actual, mass migration of many of their best workers and entrepreneurs, not even the best government PR spin will be able to make up for or to reverse.
The reason I wrote it was because the BBC had mentioned as a potential way out of the "Euro crisis" a breakup of the Euro-zone into Euro-zones, which I did a few days before, and I thought it would be a good place to drop a hint about that article for Paul Krugman to write about that, since all “Serious” people seem to read what he says, if only so they can fume about it, almost as much as the President of Estonia might. That ballistic twitter blast of Krugman by Estonia’s President, Toomas Ilves, caught my attention which led me to read the article I was commenting on. Having followed Estonian media (in English) for years, it was surprising because in interviews with him in English, he seemed rather progressive, at least in terms of the Estonian political spectrum. But man, was he pissed at Krugman.
@IlvesToomas
toomas hendrik ilves
Let's write about something we know nothing about & be smug, overbearing & patronizing: after all, they're just wogs: http://t.co/EWZ5YCIT
@IlvesToomas
toomas hendrik ilves
Guess a Nobel in trade means you can pontificate on fiscal matters & declare my country a "wasteland". Must be a Princeton vs Columbia thing
@IlvesToomas
toomas hendrik ilves
But yes, what do we know? We're just dumb & silly East Europeans. Unenlightened. Someday we too will understand. Nostra culpa.
@IlvesToomas
toomas hendrik ilves
Let's sh*t on East Europeans: their English is bad, won't respond & actually do what they've agreed to & reelect govts that are responsible.
I did not think the NY Times website would publish it, but they did, to no discernible effect. Though Krugman still has not lent his Nobel Prize winning "Seriousness" to that option, "Eurozones", at least the BBC had that option on their Europe front page for over 3 weeks via their article on ways the Eurozone could breakup. William Pfaff today also talked about that possibility on something called The Chicago Tribune. If Krugman does not read the BBC's Europe page, perhaps he will take a gander at that article.
My wonderful 1499 character comment is below in its glorious twitterized form (and to & etc.).
At Tartu University (EST) in course 'Baltic Economies' in 2004 instructor broke with Chicago school briefly with "GDP can be rising but majority can be getting poorer." Very neo-lib governments before 2008 crash. 15% avg wage cuts public sector, 10% private sector. As I wrote last week on Estonia in Euro & pressure on Latvia to break peg at my blog Truthrevival.org, Estonia is not typical case. Trade with Finland & Sweden, heavy Nordic investment, etc. Latvia had wage cuts of up to 50%. My cut in was pay temporary (in US) but teachers like I had were striking recently in Estonia to get back lost wages. GDP there may be up somewhat but with inflation, not great recovery for the average workers. Internal devaluation hits poorest harder & many are worse off than before "recovery". Latvia can still break peg, Estonia in Euro cannot, but could increase wages more & should. But other nations cannot replicate Estonia austerity without killing their domestic market. BBC had good "5 ways Eurozone could break up" also mentioned breaking Eurozone in 2, more than one leaving at once to cushion the blow. Would like to hear Krugman discuss that option to help less developed Euro regions share a secondary Euro or share common bond market if Euro bonds never happen. In regards to other comments, Estonian is a LANGUAGE similar to but not Finnish. Yes there was a bubble but wages not as affected. Housing/real estate bubble? Yes. Credit bubble? Most definitely! High wages? Most definitely not.
Though it appears my mention of a Latvian 50% wage cut (maximum) was higher than the EU estimates of a lower overall of wage reduction, higher paid salaries were cut higher than the average, and that percentage I read mentioned in more than one article on an Estonian blog. And if you can’t trust Estonian blogs, then who can you trust?
As I said in my post, my biggest problem is that there is (or at least was) not even any public discussion of anything other than Greece must stay in the Euro-zone and suffer excruciating hardships for years to come, or leave and the whole of the Euro-zone countries must risk similar calamity spreading and panic. Either stay with us and suffer greatly or go it alone and suffer even more. I am sure other options are being considered. The BBC’s “5 ways the Eurozone Could Break Up,” had that option and, I would estimate, at least 4 other ways it could be done. But the public in all of these countries are kept in the dark about them as much as the US public is about what trade agreements are putting on the table these days.
While I am not convinced as the conspiracy minded Greg Palast is that this “Euro crisis” was intentional all along ('The Euro is a Big Success - No Kidding', The Guardian, June 26, 2012), it has made a lot of banks rich. And generally having taxpayers having to foot the bill for bank's bad loans, especially foreign banks, for decades to come, means they will stay very rich, and keep doing the same thing, even though the public will suffer greatly.
That the public is not reading that there are other alternatives on how to manage a Euro-breakup is not surprising because as I mentioned, they will have absolutely no say about it anyway. Why bother them about it? But it would be nice if they were, if not consulted, at least clued in as to what their governments might be considering to get past this never ending state of panic which is destroying millions of peoples livelihoods, wages, potential retirement funds turning to vapor, and crumbling infrastructures (sound familiar?) as much as the Great Recession of 2008 did. For them the collapse never ended.
And for the Baltic countries, Estonia, Latvia, and Lithuania, things are still tough, though as Krugman has learned they don’t necessarily take kindly to that fact being blasted in the NY Times. Though NY Times readers have expressed irritation at his continuing references to these countries, it has at least kept me from being bored (since I studied about them, lived in them, and still follow their policies) until he actually might mention breaking up the Euro-zone into regions. If or when he does I can finally unbookmark his blog because the NY Times paywall is not letting me read them all anyway. Seeing headlines which I cannot read the articles to is why I stopped reading the Baltic Times online, or at least try not to.
In regards to his other posts about the region, one of the reasons why Lithuania was not as badly affected is because during the “Economic Shock Therapy” of the 1990's, Lithuania did not privatize as much as Estonia, and Latvia, and more small farms and related types of businesses were protected. That probably gave them more of a cushion during the 2008 collapse. Estonia, which lost most all of its small farms, was the more dependent upon newer industries and the “New Economy.” Being able to grow your own food is almost as good as printing your own money. In a way it probably is.
Latvia as in most cases, as well as geographically, was in the middle. It was in-between the extreme privatizations of Estonia and the cushioned shock therapy of Lithuania. As one of the other NY Times commentators mentioned, the Baltic Countries are so small, the closures or openings of one or a few large factories can skew the economic data so much as to make government policies almost irrelevant, or at least not pertinent to the real factors which changed the unemployment rates. As one of my instructors back then liked to concentrate on the effect of company towns, ones dependent upon a single factor, these countries are so small that their company town closures can skew the data for the whole country.
But I am sure the Baltic countries will do fine. It is in the interests of the neo-liberals that their favorite poster children survive long enough to beat all other EU countries over the head with. To say that if they too would only embrace austerity wholeheartedly, then everything will be fine. All it takes is for one Romney-type billionaire financier to step in at any time to save their day. For those larger countries who have embraced austerity and it wasn’t fine, then they will continue to suffer until the Euro is seriously overhauled to benefit its poorest members of the Euro-zone as much as it has benefited its wealthiest, keeping an exchange rate, in my opinion already far too high, from going even higher.
The flight of people out of the countries, as Krugman mentioned, has also been a release valve because if the jobs have gone, and many of them have, it is easier when the people go as well. Emigration had always been an issue, at least since I started studying them in 2004, but it has vastly accelerated because of this latest crash. Having long considered the devastating effects of the “brain drain” on third world countries, it is disheartening to see it playing out within the EU. Such movement might be inevitable among the best and the brightest, but many, just about any who could get out to a better developed region, I am sure has probably been considering it. And that potential, for now quite actual, mass migration of many of their best workers and entrepreneurs, not even the best government PR spin will be able to make up for or to reverse.
posted by Jared DuBois | 11:49 PM
