NO, unfortunately it is not correct to say that the "answer (to the Eurozone debt crisis)...is a commitment ...to bugdet dicipline and strucutural reform" alone. These are necessary but not sufficient condtions for saving not only the Single Currency, but more importantly, the Single Market. More critically, we need a committment to external adjustments, and to reducing intra-Eurozone CAB imbalances, by all trading partners,by the net exporters as well as the net importers.
WHAT, not who, must stand behind the Single Currency?
Balanced intra-Eurozone CAB current balance-of-payment accounts.
Balanced intra-Eurozone CAB current balance-of-payment accounts.
Further, we do need a banking union, not just to "backstop the banks", but to take over the function of prudential regulation which was so mismanaged by the net-creditor national central banks which allowed all that excessive cross-border "cheap credit" exposures to build up. Can't really blame the German banks though; they had to do something with all their "petrodollar"-type surplus deposits, and BASEL did say all European sovereign borrowers were risk-free.
The current European credit crisis may APPEAR existential, because it does imply the end of the credit-fueled illusion, but it is fundamentally still JUST a trade and balance-of-payment crisis, aggravagted by "banking-by-numbers", (im)prudent "home rule" regulation, and now by procastination and loss-avoidance.
YES, the structural reforms are essential, let's have Agenda 2010 for all. But the new fiscal treaty is based on another illusion, that overleveraged borrowers can reduce their external debt without sacrificing the overextended creditors. And THAT is why "the vision" is not believable.
Polarization of fortunes occurs between net exporters and net importers, not necessarily north/south. But this divergence eventually hits natural limits, to the extent that the net importers accumulate too much external debt and become mortgaged to the next exporters. The real problem is that the external adjustment burden is falling entirely on the borrowing countries of the Eurozone, through unilateral internal devaluations, without being able to cut evenluxury imports.
It will either be a miracle ... or a disaster.
Believers can offer their prayers in Fatima ...
Believers can offer their prayers in Fatima ...
Mariana Abrantes de Sousa
PPP Lusofonia
Cuidado, renegociar a dívida é uma coisa a tratar directamente com os credores.
ResponderEliminarNão implica sair do euro.
"Aquilo que nenhum político vos dirá
Portugal pode não ter alternativa a renegociar a dívida e a sair do euro"
Por José Manuel Fernandes
http://jornal.publico.pt/noticia/28-09-2012/aquilo-que-nenhum-politico-vos-dira-25318661.htm
Will unilateral "fiscal devaluatons" work to achieve external rebalancing within the Eurozone? NO
ResponderEliminarWhat is the best way to achieve Balance of Payments adjustments in the context of a fixed conversion rate?
A traditional monetary devaluation is bilateral, as it alters the relative X/M prices in both the net importing and the net exporting countries. If the importer can control its own monetary policy and is financed in its own currency, it can even inflate away some of its real external debt (ex. US, UK). Most of the X-M adjustment is achieved through the price-elasticity rather than income-elasticity.
A “fical devaluation” is unilateral, it affects mostly the net importing country, and it operated primarily through the mechanism of income-elasticity, reducing the de-mand for imports by reducing local disposable.
This is not just from the textbooks, this is what is happening in Portugal circa 2012.
In the Eurozone, the small net importing countries a one-armed midgets, all they have left is fiscal and incomes policies, which they use and abuse. They can’t alter the X/M price relationship, they can’t, use monetary policy to adjust the price and supply of credit to the local economy, they don’t have the economies of scale to compete in the increasingly polarized export markets, they can’t re-orient credit to export-oriented sectors, and they certainly can’t force the net-exporters and net-creditors to share the losses for the excessive credit they made to recycle their export surpluses.
Who ever heard of “unilateral” external adjustments?
To evaluate how badly these unilateral devaluations are working to rebalance trade within and outside of the Eurozone, just look at the record German trade surplus of 2012.