Another day, another sneak remark of Krugman against the Euro which mars an otherwise well thought of train of ideas. However, our student the dear professor is learning. He just made an excellent editorial “The Fall of France” about which I commented, and that was published (whereas the Times censored my observations about Putin’s naked aggression in Ukraine: comparisons with Hitler, however scholastic, are not welcome!). More on this later.
Krugman’s tendency to fall into Euro bashing prevents him to see the (obvious) solution. Let alone mention it. The solution lays for all to see in history, when the Euro solved the German problem for the best:
History As A Sum Of Solutions
Question: what did I exactly mean? See below, for those who do not see the blatant answer in the violent graph above. Here is part of Krugman’s “Germany’s Sin”.
“Simon Wren-Lewis has two very good posts about the European situation, first laying out the problem, then taking on those who don’t get it. I just want to add a bit to one of his key points: the impossibility of a resolution unless Germany accepts higher inflation.
In Germany, there’s a strong tendency to moralize, with appeals to the country’s own recent economic history. We pulled ourselves out of our late 90s doldrums, the Germans say, so why can’t Southern Europe do the same?
But a key part of the answer is that Southern Europe now faces a much less favorable environment than Germany did then — and Germany is the reason why.”
For a full decade, eurozone inflation was 2 percent, while inflation in Southern Europe was considerably higher. Germany could gain competitiveness simply by having low inflation — no need to deflate. But these days German inflation is only one percent, French inflation close to zero percent. Thus eurozone inflation is no more than one percent. Gaining competitiveness means that Southern Europe should deflate.
And Krugman to conclude:
…”deflation worsens the debt burden. Add onto this the fact that the eurozone as a whole remains depressed thanks to fiscal austerity and inadequate monetary expansion, and Germany is in effect demanding that Spain and others accomplish a task vastly harder than the Germans themselves had to achieve.
And the worst of it is that there’s no sign that Berlin understands, or is willing to understand, this reality. And if the euro fails, that refusal to think clearly will be the fundamental cause.”
Right. And also wrong. “If the euro fails” is not really a possibility. It would cost so dearly, to so many people, that it would be akin to war, and Europeans have learned a few things that way. A lot of milder drastic changes can be effected before coming to blows.
Notice an obvious help Germany had when it was the sick economy of Europe: a Euro which was 40% lower. It’s curious, but no accident, that Krugman fails to notice this.
Bringing the euro to 83 dollar cents has happened before, and was there to help Germany, then. The good professor should mention this more. That would help the German miscreants to remember the past better. (Of course, the Euro at 83 Dollar cents would be a disaster for the USA, hence Krugman’s failure to notice the obvious!)
Instead, to brandish the “failure” of a currency directly used by so many people is not serious. More than 50 countries and 530 million people use the Euro (counting both the 340 million of the Eurozone, plus nearly 200 million pegged to the Euro, and unilateral users).
Even if the euro disintegrated, the nasty mood of some in Germany would not just persist, but prosper further. Ultimately that bad mood has to be crushed at close quarters.
Germany has become the world’s greatest produced of lignite, the dirtiest coal. It’s high time for some serious German bashing. Just slamming the door is not enough: historically Germans understand barking best (as Nietzsche may have said).
Bringing the euro down would help the suffering European countries a lot. Let’s remind the Germans of this. Remind them of their own past, and other previous pasts: German currency manipulations to gain advantage go all the way back to the early 1920s (thanks to Dr. Schacht, head of the central bank, and later one of Hitler’s main promoter!)
Bringing the euro 35% down: that would be a triumph, a real euro success. (That would just put the Euro where it’s supposed to be, in long term parity with
Hating the Euro is hating Europe. This being said, differently from the Federal Reserve Bank of the USA’s mandate, the ECB’s mandate makes the “value of the currency” the “principal object” of its activities (that’s article 127 of the European Constitution). By contrast the Fed has a DOUBLE mandate: insuring the value, and optimizing economic activity.
I had a fight with a French economist when I pointed out the flaw of the ECB mandate. She told me: ”No, the ECB’s mandate is like the Fed’s!”. Her own son, himself a high flying interest rate analyst in London, agreed with me. She erupted: “I have taught these things, for years!”. She brandished books. I told her to look it up in the Internet.
Article 127(1) of the Treaty defines the primary objective of the Eurosystem:
“The primary objective of the European System of Central Banks […] shall be to maintain price stability”.
Article 127 continues as follows: “Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union.”
Even as my friend, aghast, looked at the screen, and read those words, she could not understand what they meant. yet, it’s simple: it meant the destruction of the European economy.
Why? Because “price stability” is unsustainable, just as a plane cannot fly at ground level. In economics, the ground is zero percent inflation. Right now it’s only .3% in the Eurozone. For why inflation too close to zero is a disaster, see “Inflation Good, Stagnation Bad” or the older: “4% inflation best”.
We are led by imbeciles. Some are politicians, some are bankers, some are economists, some teach what they call economics, or politics. Many are greedy, and profiting from the stupidity they advocate.
Who gave them their drivers’ license? The license to drive entire economies, and even the biosphere, into the ground, while insulting common sense, let alone common science? Yesterday’s oligarchies?
Patrice Ayme’
Tags: Dollar, economic crisis, Euro, Eurozone, Germany, history, Krugman, Morality, Overvaluation, Sin
Patrice Ayme's Thoughts 
August 29, 2014 at 10:49 pm |
They are not just imbeciles, but LIARS and quasi-fascists. They have consistently lied about the euro. The bailouts are illegal according to the barious treaties. Their agenda is to force European federalisation into a superstate, but NOT ONE SINGLE EUROPEAN CITIZEN HAS VOTED FOR THIS – NOT ONE, EVER, ANYWHERE.
A grotesque EU/Franco-German troika forced the democratically-elected Greek PM to resign. They ignored national votes in vcarious countries against the European Constitution and did what they wanted anyway. They have just nominated a second President (even the US only has one) who has admitted LYING about the euro.! Ten thousand eurocrats earn more than the British PM and pay little tax. The whole of Southern Europe is undergoing ten years of economic and social meltdown.
This organisation has ZERO CREDIBILITY. It should be wound up, along with the euro.
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August 30, 2014 at 12:42 am |
Always the same beautiful Europhobic screaming from Chris Snuggs. Exact same observations.
Yet, the way European integration has been fostered is not any different from the way anything is being implemented in the fake democracies we enjoy.
Maybe if Scotland leaves Britain, UKIP will have something else to scream about. Scotland has already taken its leave: there are more pandas in Scotland than conservative MPs, as the joke goes.
Anyway, Chris what about saying something new?
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August 30, 2014 at 1:02 am |
The story of the “democratically elected Greek PM” was also complex. Papandreou tried to have it many ways at once. And he viciously confused the banking/sovereign crisis with a (then) inexistent Euro crisis.
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August 30, 2014 at 12:48 pm |
Maybe if you knew Chris better you would be more careful about casting aspersions on his character. I write this from having had a professional, and later a personal, relationship with Chris for many years.
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August 30, 2014 at 3:05 pm |
Dear Paul: I did not notice said “aspersion“. But I met a lady linguist, fresh from a conference in the Netherlands, who told me, in French, and a big smile, that Chris said only “conneries“.
There seems to be an important contradiction between Chris’ European formation, and his hatred of the European Union. Because hatred is the word. He is proposing to destroy the EU, not improve it. As I pointed out, when he says nobody voted for it, he is factually wrong (Ireland had referenda on all and any European constitutional change; or does Ireland not count in English/UKIP eyes?)
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August 30, 2014 at 7:58 pm |
I cast reproach and condemnation on what are outright Europhobic LIES. It is indeed a complete LIE to say no European ever voted for the European Union. And there were certainly votes AGAINST, followed by changes, that led to votes FOR, for the modified versions.
Chris is not a cranky old man, no doubt, but he comes through as someone who has obsessive compulsive Eurocrat ENVY. A sort of penis envy, no doubt.
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August 30, 2014 at 12:58 am |
As Gmax said, the objection seems to be against representative democracy. The claim that nobody ever voted for “THIS” is not correct: they sure did, indirectly, countless times. Moreover, European construction necessitates Constitutional changes in the 28 countries (let alone Norway, Switzerland, etc.). And that is submitted to the full “democratic” checks and balances.
Plus, Eire (which used to be subjected by London until less than a century ago), systematically submits all EU Constitutional changes to REFERENDUM. So the Irish people has voted for “THIS” many times (and at least once against; but then changes were made so that next time the Irish voted FOR “THIS”).
Cameron’s government is infested by extremely rich plutocrats (starting with himself, a hyper wealthy heir). Those minsters of Cameron are way richer than nearly every Euro MP, or Eurocrat, but for the Europhobic Le Pens of France (wealthy from gifts from other wackos).
What’s amazing is that Cameron and his plutocrats draw a salary from the public. Who has voted for THIS?
It’s true that the EU is out of line in many ways. Those ways are very irritating, and a huge backlash, well deserved, is coming. The EU should stick to productive and protective European integration. The rest ought to be shut down. (Things like regulating cheese, the size of flowers, and which waters we can bathe in, etc.)
PA
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August 30, 2014 at 11:37 am |
There has been lying indeed – from the Tories to the Brits. Please don’t put this on the EU’s door mat. The treaties the UK joined were perfectly clear on the ongoing thrust for further European integration. Which is why the Tories’ double play – lying to the voters to get the treaty through, and then doing everything in their power to disrupt and impede the integration they’d agreed to – was thoroughly despicable and nefarious, as everybody can see. If only because economy with the truth (lovely English euphemism, on a par with “creative accounting”) has now become the EU’s second nature.
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August 30, 2014 at 3:15 pm |
Indeed. The end result is that the English have become rabidly anti-EU, with rhyme, but no reason. Hopefully, if not in 2014, the pay-back will be Scotland’s secession (already de facto here).
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August 30, 2014 at 3:27 am |
[Sent to NYT, 29 Aug. 2014.]
The first thing to do is “print” enough Euros to drown the debt, and lower the Euro. The Euro was 40% lower, when Germany was in big trouble, 15 years ago. The same remedy would bring the same spectacular result for the part of Europe now in trouble.
That some “conservative” Germans do not understand this is either astoundingly ignorant, and, or, alarmingly malevolent. It is high time for Germany to remember that it is deliberately erroneous German monetary policies from the German central bank that led Germany down the abyss in the 1920 s and 1930s.
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August 30, 2014 at 8:18 am |
In the past i published several sketches and essays about the subject, so let me share with you a funny one, followed by more serious links;
……As to the connection between food and economy, it explains perfectly why in the southern Europe the economy is sluggish and in Germany and North of it, it is so energetic.
If you take the Southern Europeans, at lunch time, they have tasty pasta, moussaka, lamb stew, paella you name it, then they have a excellent glass of house made red vine. Who wants to work after it?
On the other hand the Germans and North Europeans, when they go to lunch, they have a sausage, (Frankfurter) with bitter mustard, or a herring with sour onions, that they swallow with glass of bitter beer, and disgusted continue to work…….
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August 30, 2014 at 3:18 pm |
The non funny answer is that Spain had only 37% state debt before the 2008 banking crisis. A EUROPEAN BANKING UNION would have left Spain’s national budget intact. So the crisis was not caused by Spanish sloth, or mixing rice, safran and octopi in a paella, but the unforgivable lack of a Banking Union.
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August 30, 2014 at 11:43 am |
Um Patrice, with an ECB completely in thrall to German wisdom and/or bullying, and European Governments repeatedly whipped into abject submission, just how do you propose to get around to that common sense policy shift? Growing a spine and a brain is such a lengthy process when you start as a drifting jellyfish.
Maybe it’s time to use the good old German trick of swamping the markets with counterfeit banknotes – for the good, this time.
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August 30, 2014 at 3:13 pm |
The debate will change if Germany enters a recession, as it may well be doing now.
BTW, The Economist, I discovered also made an article asking the ECB to change policy in the direction (but not as far), as I want. TE wants QE, I want massive devaluation.
Nothing prevents any of the NCBs, the National Central Banks, to flood the market with Euros. Greece NCB, a fortiori the Banque De France, could flood the market with trillions of Euros.
As you said, they are “in thrall” with German CONSERVATIVES… Forgetting it’s the corrupt Schroeder, from the SPD, who made most of the real reforms (all the “courage” came from Schroeder, not Merkel).
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August 30, 2014 at 12:39 pm |
To my mind, the Eurozone always had one fundamental flaw. That without a balancing political’leg” the Euro was (is) unstable. It still is.
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August 30, 2014 at 2:57 pm |
Dear Paul: Currencies have functioned over non state entities sometimes for centuries. An example is the Thaler (aka Tolar, Dollar, etc.).
The number one flaw is that the ECB does not have a mandate identical to that of the Fed, as I explained (Art. 127).
Last year, under political orders, the Bank of Japan switched to a Fed like mandate (“Abenomics”). It worked. Same in Britain, where the BOE has been printing with gusto.
The drama with the Euro is its stability, not its instability. BTW, notice, as I said, that the terrible German monetary policy of the 1920s, 1930s spilled out of Germany’s borders (the same can be said to similar madness in Britain and the USA, or, in an apposite way, France). France now has more control over Germany, with the Euro (or vice versa), than without. Hopefully that will discourage big time mental (“political”) instability.
The maker of the “Eurosystem” viewed it as baby steps. ALL European powers, including BRITAIN, are supposed to switch to the Euro, ULTIMATELY.
At the same time, among other things, a European BANKING system is to be created. Its necessity was recently demonstrated (2008!). There, also, baby steps have been taken, the 200 biggest banks will submit (in spite of British insane ideology and German resistance: Germany Lander banks are more or less bankrupt… but useful).
Notice these preceding remarks are specifics, denoting analytic progress, not a rehashing of always the same unreal slogans some wallop in.
PA
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August 30, 2014 at 3:00 pm |
Ah, detail: there is a political leg, and it is even endowed with a Parliament (where Chris’ UKIP is member of a group, thus getting EU subventions!!!!!!!!!!!! And they worked hard to get those subventions, a contradiction Chris will be no doubt happy to explain!)
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August 30, 2014 at 3:31 pm |
“a contradiction Chris will be no doubt happy to explain”
He only has to take a leaf off the book of Ayn Rand, the giant philosopher who wreaked more havoc than Kant and Plato together.
Despite loudly lauding the hyper-rich in her unreadable novels, she never got a red cent from them and was as poor as a church mouse, so she lived on the dole. When asked how she could have the gall of living off the common purse when she kept ranting against the lowlife parasites, she said that,the unemployed, the destitute and the like had indeed no right to suck the State’s teat, but that she, as a combatant against that system, had a right and even a duty to take advantage.
Fits UKIP, FN and others like a glove. Plus c’est gros mieux ça passe, as we say.
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August 30, 2014 at 3:43 pm |
Indeed. Indeed. Lenin had a similarly utilitarian “philosophy” (so he made friends and the closest business with American plutocrats, and German fascist dictators).
Considering Kant was used by the Nazis (as Nietzsche had warned, even before Nazis were named), and Plato made the bed of Hellenistic dictatorships (“kingdoms”), and then Christian bloody, civilization smothering tyranny, methinks you flattered Aynd Rand (not her real name: she was some sort of Eastern European Jew/destitute who aped Nietzsche in some of this philosopher’s not necessarily funny jokes).
Rand’s rants rendered us all stupid. Yet, they dominate. Not the first time stupidity wins the war.
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August 30, 2014 at 6:01 pm |
[Sent to Wren-Lewis “Mainly Macro”.]
“What is far more inexplicable is that the rest of the Eurozone is allowing Germany to get away with it.”
Well, people are sick of war. Very bad currency policies engineered by Germany in the 1920s and 1930s played an important role in the German engineered disaster that struck Europe in the 1930s. Instead of reminding Germans of this, it’s considered wiser to forget it.
That, of course, is a mistake. Germany profited from the enormously lower Euro more than a decade ago. It’s time to advocate not just higher inflation, but a much lower Euro. Or is it that the Euro ought to be only a German tool? Very low when it’s good for Germany, all too high when it advantages Germany?
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August 30, 2014 at 6:38 pm |
[Sent to Krugman; Aug 30.]
Greek style crises cannot happen in countries that borrow in their own currencies. Yet, it’s a distinction without a difference, because they will have a financial crisis if nobody trust their currency.
It’s true that, the USA having the largest military and being self sufficient, can borrow as much as it wants, default on its debt, and repeat the process, as much as it wants.
However, not so for smaller, less self-sufficient countries. An example is Argentina.
Even the USSR could be viewed as such a case (it could not afford to buy what it needed from other countries).
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August 30, 2014 at 7:00 pm |
[Sent to Krugman.]
Monetary policy is just one aspect, and not the worst. Nothing prevents any of the NCB (National Central Banks) to print as much Euros as they want. Of course, it would solve nothing.
Bringing down, as I have argued, the Euro to 83 cents on the dollar (as it used to be… instead of 145 cents recently…) would solve most European problems.
Still, nothing will happen as long as governments do not stimulate the economy with ambitious long term perspectives. As the USA knew from president Roosevelt to Kennedy. Or as Europe knew when it had to reconstruct.
An obvious stimulus would target a complete change to the backbone of civilization, the energy systems. They need to be rebuilt to prevent any further impact on the biosphere, a task larger than war.
The absence of such an endeavor will not just bring the mother of all disaster, but even war relatively soon (as the fossil fuel motivated annexations and invasions of the Putin demonstrate).
I wrote a number of essays on this larger pictures on my site.
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September 4, 2014 at 11:34 am |
“Nothing prevents any of the NCB (National Central Banks) to print as much Euros as they want.”
With no constraints at all from the ECB charter?
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September 4, 2014 at 11:43 am |
Nope. ECB is one thing; NCBs, another.
That’s why when Krugman and other crude men speak about the Euro “failing”, they don’t even mention the probable real crisis, if there was a Euro crisis: one NCB, or a coalition of them, would start printing Euros massively, to force the Euro down, or generate more money locally.
It’s also an implicit proof that the crisis is not about the banks not having enough money, contrarily to crude men’s claims…
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September 4, 2014 at 4:20 pm |
What, then, is the role/purpose/significance of ECB?
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September 4, 2014 at 5:35 pm |
Mostly do what they did today by lowering them: fix short term interest rates for the Euro.
The ECB can also do Quantitative Easing (buying long term bonds, thus creating base money, while lowering long term interest rates). Under Draghi, it did more than a trillion Euros of it (the Fed did 8 trillions, although some contest that, but not the chief TARP inspector.)
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September 4, 2014 at 8:29 pm |
ECB just announced targeted Asset Backed Securities (ABS) purchases:
http://www.bloomberg.com/news/2014-09-04/draghi-says-ecb-readying-sizable-abs-purchases-after-rate-cut.html
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September 4, 2014 at 4:41 pm |
And why did Greece and Cyprus have to take a loan from ECB?
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September 4, 2014 at 5:48 pm |
All this flow from the lack of a Banking Union. Now it’s in progress, in spite of Cameron’s attempted sabotage.
Basically, absent a BU, the Sovereigns had to step to the plate, and got themselves bankrupt in the process. Then the BCE bought their bonds, and Spanish 30 year ended below USA 30 year…
However, the Fed does this all the time, but the ECB did it just once. Because of German (Weidman) resistance. Weidman’s arguments are good, cogent, but drastically incomplete. Germany has resisted BU, only agreeing for the 140 or so, largest banks.
The BU’s charter states that using Sovereign money to save private banks will not happen again (as the insurance intrinsic to the BU enables to avoid). Notice that Reagan-Bush I had to step in, and NATIONALIZE more than 2,000 S&Ls…
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August 31, 2014 at 1:26 pm |
[Sent to Mainly Macro, Wren Lewis, Oxford. 31 Aug.]
Article 127(1) of the Treaty defines the primary objective of the Eurosystem:
“The primary objective of the European System of Central Banks […] shall be to maintain price stability”.
Article 127 continues as follows: “Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union.”
The primary objective was not economic success, high employment, growth, etc. And maintaining inflation below 2% is too close to deflation to be stable, in the long run (whereas inflation can always be cut down with high short term interest rates, and a little recession, no powerful tools exist to terminate deflation. Full deflation is a depression, and has no obvious solution. Thus it is extremely dangerous to flirt with deflation, as the ECB does.)
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September 7, 2014 at 6:47 am |
If it is indeed true that NCB’s have retained their monetary sovereignty, why do Eurozone countries allow themselves to be tied to loan conditions of austerity from Brussels and the ECB?
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September 7, 2014 at 10:35 am |
Excellent question. My latest essay, on Macron, answers it, implicitly.
“Eurozone countries” is not an entity, but a fake-out. In truth, the plutocracy puts in place carefully selected “leaders” who are its employees.
For example Dragghi and Monti (nominated Italian PM for more than a year) are Goldman Sachs ex (?) employees. Berlusconi was the most paid Mafia launderer ever. That’s just Italy, over a one year period.
Greece was the same: several of the principals were also partners at G-S. And that’s just G-S. There are many other financial conspiracies (aka “firms”).
And so on.
BTW, France, together with Germany a decade ago, were the first to break the 3% deficit rule. France is persistently at least at 4% deficit nowadays. What are the others going to do? Wage war, or get ready to so, as France does, all over Africa and the Middle East? Surely not. France can easily point out that, if she spent as little on defense as Germany, she would be well below 3%. France can also point out that the fact Germany is at 0% is part of the problem.
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