5 ms·

Paul Krugman: An Impeccable Disaster

16 points by awk 15y ago

Tichy 15y ago
Interesting - though I have to wonder, what is to keep spending in check, if the ECB just starts to buy whatever debt emerges? Could both sides be kind of right (the moralizers and the spenders)?
nhaehnle 15y ago
It is nice to see Krugman acknowledging the importance of monetary sovereignty, i.e. whether a government issues its own currency or not. The trouble with the Eurozone seems to me that to any but the most hardboiled ideologues, it is obvious that significant stimulus is needed in the affected countries (perhaps combined with other measures, like strengthening the tax collection bureaucracy in some cases). The problem is how to get the stimulus there. The countries themselves cannot do it because the financial markets won't let them, and the other countries hesitate to do it because of the collective outcry over taxpayers bailing out another country. The ECB is filling the gap for now, but it doesn't really have the political mandate to make pseudo-fiscal decisions like buying a country's bonds. To me, the solution seems obvious: Give the power of monetary sovereignty to the European Parliament. Since the MPs there are elected directly by the European people, they are the natural wielders of sovereign power when it comes to the Euro. Giving this power to the EP is even possible without taking any rights away from the individual countries, because right now, no one has monetary sovereign power in the Eurozone (unless you count the ECB, but again, they don't really have the political mandate). Unfortunately, this possibility is not even being discussed yet, and there are significant political egos on the national level that need to be overcome before it can be implemented.
- daliusd 15y ago
  The only problem with your obvious solution - Eurozone (http://en.wikipedia.org/wiki/File:Eurozone.svg http://en.wikipedia.org/wiki/File:Eurozone.svg) is smaller than European Union (http://en.wikipedia.org/wiki/File:EU_Globe_No_Borders.svg http://en.wikipedia.org/wiki/File:EU_Globe_No_Borders.svg) therefore European Parliament can't take this role. Yes, Eurozone has problem that they have single currency but no single political institution and your solution is theoretically correct but practically you have two choices: 1) you would need to force Great Britain, Sweden, Norway, Denmark and maybe some other countries (e.g. I'm not sure about Czech Republic) to use Euro. A lot of other countries would be happy to accept Euro - especially Eastern Europe countries. I would be happy personally :-) But those countries do not fulfill Euro convergence criteria (http://en.wikipedia.org/wiki/Euro_convergence_criteria http://en.wikipedia.org/wiki/Euro_convergence_criteria). Accepting those countries just as is will have big negative impact to Euro. 2) Or let non-Euro countries to decide Euro destiny. That does not sound good either. Therefore your obvious solution looks more like edge case solution.
  - nhaehnle 15y ago
    What about the middle road of taking the European Parliament restricted to MPs from Euro member states? I admit that's not a very orthodox option, but the Eurozone is a pretty unorthodox construction anyway.
    - daliusd 15y ago
      In my opinion that kind of happens now and moving solution apparatus to EP alone will not improve situation. The main problem is that Germany, France and Benelux countries combined has bigger weight in EP than PIGS countries. General opinion in Germany is that Greece must bankrupt [1] and I guess that's general opinion about PIGS. Moving decisions to EP would give opposite effect at the moment. There is no single Europe yet. Before some time I have tried to compare USA to EU: http://news.ycombinator.com/item?id=2725696 http://news.ycombinator.com/item?id=2725696 It is quite interesting that EU and USA can be compared but different structure of economies show why USA is in better/different position. [1] http://www.guardian.co.uk/business/2010/mar/04/greece-sell-islands-german-mps http://www.guardian.co.uk/business/2010/mar/04/greece-sell-i...
- Tichy 15y ago
  But what good does a stimulus do, if the highest ambition of the countries youth are to become state employees (civil servants)? Wouldn't the money just be used to increase pensions and bureaucracy? Not saying it is wrong, but it seems to me merely pumping money into a country is not a surefire way to solve all problems.
davidw 15y ago
In the past, I've complained about articles from mises and reason.org, so it'd only be fair to mention that this is basically politics as well, and likely off topic because of that.
kqr2 15y ago
The ECB's reluctance to buy debt stems from Germany's (its strongest member) deep fear of inflation. From http://www.npr.org/blogs/money/2011/09/09/140342690/the-friday-podcast-the-ghost-that-haunts-europes-debt-crisis http://www.npr.org/blogs/money/2011/09/09/140342690/the-frid... : It goes back to the years after World War I, when Germany experienced one of the most catastrophic bouts of hyperinflation in the history of the world — an economic disaster that helped lay the groundwork for the rise of the Nazis. So when Germany joined the euro, the Germans insisted that the newly created European Central Bank be bound by strict rules aimed at preventing inflation.

16 points by awk 15y ago

Tichy 15y ago

Interesting - though I have to wonder, what is to keep spending in check, if the ECB just starts to buy whatever debt emerges? Could both sides be kind of right (the moralizers and the spenders)?

nhaehnle 15y ago

It is nice to see Krugman acknowledging the importance of monetary sovereignty, i.e. whether a government issues its own currency or not. The trouble with the Eurozone seems to me that to any but the most hardboiled ideologues, it is obvious that significant stimulus is needed in the affected countries (perhaps combined with other measures, like strengthening the tax collection bureaucracy in some cases). The problem is how to get the stimulus there. The countries themselves cannot do it because the financial markets won't let them, and the other countries hesitate to do it because of the collective outcry over taxpayers bailing out another country. The ECB is filling the gap for now, but it doesn't really have the political mandate to make pseudo-fiscal decisions like buying a country's bonds. To me, the solution seems obvious: Give the power of monetary sovereignty to the European Parliament. Since the MPs there are elected directly by the European people, they are the natural wielders of sovereign power when it comes to the Euro. Giving this power to the EP is even possible without taking any rights away from the individual countries, because right now, no one has monetary sovereign power in the Eurozone (unless you count the ECB, but again, they don't really have the political mandate). Unfortunately, this possibility is not even being discussed yet, and there are significant political egos on the national level that need to be overcome before it can be implemented.

daliusd 15y ago
The only problem with your obvious solution - Eurozone (http://en.wikipedia.org/wiki/File:Eurozone.svg http://en.wikipedia.org/wiki/File:Eurozone.svg) is smaller than European Union (http://en.wikipedia.org/wiki/File:EU_Globe_No_Borders.svg http://en.wikipedia.org/wiki/File:EU_Globe_No_Borders.svg) therefore European Parliament can't take this role. Yes, Eurozone has problem that they have single currency but no single political institution and your solution is theoretically correct but practically you have two choices: 1) you would need to force Great Britain, Sweden, Norway, Denmark and maybe some other countries (e.g. I'm not sure about Czech Republic) to use Euro. A lot of other countries would be happy to accept Euro - especially Eastern Europe countries. I would be happy personally :-) But those countries do not fulfill Euro convergence criteria (http://en.wikipedia.org/wiki/Euro_convergence_criteria http://en.wikipedia.org/wiki/Euro_convergence_criteria). Accepting those countries just as is will have big negative impact to Euro. 2) Or let non-Euro countries to decide Euro destiny. That does not sound good either. Therefore your obvious solution looks more like edge case solution.
- nhaehnle 15y ago
  What about the middle road of taking the European Parliament restricted to MPs from Euro member states? I admit that's not a very orthodox option, but the Eurozone is a pretty unorthodox construction anyway.
  - daliusd 15y ago
    In my opinion that kind of happens now and moving solution apparatus to EP alone will not improve situation. The main problem is that Germany, France and Benelux countries combined has bigger weight in EP than PIGS countries. General opinion in Germany is that Greece must bankrupt [1] and I guess that's general opinion about PIGS. Moving decisions to EP would give opposite effect at the moment. There is no single Europe yet. Before some time I have tried to compare USA to EU: http://news.ycombinator.com/item?id=2725696 http://news.ycombinator.com/item?id=2725696 It is quite interesting that EU and USA can be compared but different structure of economies show why USA is in better/different position. [1] http://www.guardian.co.uk/business/2010/mar/04/greece-sell-islands-german-mps http://www.guardian.co.uk/business/2010/mar/04/greece-sell-i...
Tichy 15y ago
But what good does a stimulus do, if the highest ambition of the countries youth are to become state employees (civil servants)? Wouldn't the money just be used to increase pensions and bureaucracy? Not saying it is wrong, but it seems to me merely pumping money into a country is not a surefire way to solve all problems.

davidw 15y ago

In the past, I've complained about articles from mises and reason.org, so it'd only be fair to mention that this is basically politics as well, and likely off topic because of that.

kqr2 15y ago

The ECB's reluctance to buy debt stems from Germany's (its strongest member) deep fear of inflation. From http://www.npr.org/blogs/money/2011/09/09/140342690/the-friday-podcast-the-ghost-that-haunts-europes-debt-crisis http://www.npr.org/blogs/money/2011/09/09/140342690/the-frid... : It goes back to the years after World War I, when Germany experienced one of the most catastrophic bouts of hyperinflation in the history of the world — an economic disaster that helped lay the groundwork for the rise of the Nazis. So when Germany joined the euro, the Germans insisted that the newly created European Central Bank be bound by strict rules aimed at preventing inflation.