One problem with the Maastricht’s criteria, the Eurozone’s fiscal rules, was certainly the lack of enforcement , with an acquiescent Eurostat standing idly as the perimeter Public Administration was shrunk, and more and more expenditures and debt were reclassified as non-public.
Enforcement is done by people, who are naturally subject to various influences, and no one had any incentives to look at the growing debt icebergs as Governments borrowed off-budget. Even the rating agencies and creditor seemed to have their "debt sonars" turned off.
But the more critical issue is that the poorly designed Maastricht criteria focused attention only on the intermediate and instrumental targets, the domestic fiscal deficit, rather than on the true ultimate goal, the current account balance. Worse than defining objectives is to establish the wrong objectives.
External imbalances were ignored because it was convenient to believe that intra-Eurozone trade imbalances could be financed forever. In fact, having put aside the normal adjustment tools, the Single Market and the Single Currency make balanced external accounts all the more imperative. But even in mid-2011, many continue to believe in this Single Curency illusion, and its collarary that trade surplus countries need do nothing to participate in the “intra-Eurozone external adjustments”, which are seen as wholly the responsibiliity of trade deficit countries.
These fragile Eurozone economies are now being asked to do all the work necessary for the intra-Eurozone CAB adjustments, without the benefit of any of the usual balance of payments adjustment tools.
Economic midgets with their policy hands tied behind their back playing trade volleyball against economic giants.
It is not going to work.
Mariana Abrantes de Sousa
PPP Lusofonia
SEE
Artigo de Helena Garrido, Jornal de Negócios
It's the total external debt, stupid
Balança comercial agrava-se
This time is different
The Portuguese Economy: Portugal’s bailout: reinventing the wheel
Helena Garrido recorda, a 2-Junho-2011, o debate sobre a importância de reduzir o défice externo.
ResponderEliminarDe facto, sem instrumentos de ajustamento automático externo (desvalorização, tarifas alfandegarias, taxas de juro, controlo de capitais), não se deve financiar e permitir a acumulação de défices externos.
Este foi o erro crasso da Eurozone e dos bancos centrais europeus.
http://www.jornaldenegocios.pt/home.php?template=SHOWNEWS_V2&id=488171
Greece: There's Only So Much One Country Can Do From Within the EU
ResponderEliminarThe combination of stagnant internal (Eurozone) demand coupled with the hyper-competitiveness of the German export machine, makes it difficult, if not impossible, for the weaker members to work their way out the mess.
http://www.bullfax.com/?q=node-greece-theres-only-so-much-one-country-can-do-within-eu
Divergence between surplus and deficit countries continues:
ResponderEliminarGermany reports the lowest unemployment since reunification.
Desemprego alemão cai para nível mais baixo desde reunificação
The eurozone debt crisis is big enough that there's plenty of blame to go around, and some of it certainly should go to the crisis countries themselves. But it must also be recognized that as soon as those countries adopted the euro, powerful forces were set in motion that made a financial crisis likely, and very possibly unavoidable, no matter what the governments of the peripheral euro countries did. Irresponsible behavior by the periphery countries did not set the stage for the eurozone crisis; the common currency itself did.
ResponderEliminarExternal account CAB imbalances have to be rebalanced through the external trade and balance of payments accounts.
ResponderEliminarLower interest rates give the wrong signal to net importing countries, which need to cut consumption and cut imports, even as they shift some of the cost of the adjustment to the net exporting countries.
What is needed is a big increase in spreads and intermediation margins, to protect the banks which intermediate between the net surplus and net deficit countries.
And small countries are simply steam-rolled.
How can trade midgets rebalance the entire intra-Eurozone trade imbalances?
Quem não tem cão, caça com gato.
ResponderEliminarNa falta dos instrumentos tradicionais como a politica cambial, politica monetária, politica comercial, tarifas algandegárias, control de capitais, é urgente recorrer a outros instrumentos, não só a politica fiscal e orçamental, mas também a politica de crédito, e as politicas de gestão bancária e financeira.
Considering the continuing and unsustainable divergence of fortunes among the EU trading and financial partners (creditors versus debtors), the midget economies may need to bring back a lot more of the missing economic tools if they want to up-right their economies:
ResponderEliminar- capital controls to moderate and avoid tsu-moneys
- customs tariffs to cut imports without having to cut local incomes
- credit controls to channel credit to exports rather than imports
- monetary policy to insure positive real interest rates to promote local savings
- exchange rate policy to rebalance the terms of trade and relative prices between imports and exports
- a surtax on foreign borrowing to internalize the externality of excessive external debt accumulation and the sovereign rating collapse...
All things that the debtor countries need to do and which are "impossible" to do within the context of the Single Market and the Single Currency
... ... ... watch this space ... ...