PIIGS back


Thoughts on Europe as the Eurozone crisis rumbles on.  There have been a number of themes that seem to resonate.  Were the fault lines,   that are creating so much pain, already in place back in 1999 when the single currency was created?  Has the austerity based approach since 2009 being sensible and will it ever resolve the North South divide in productivity?  Are the high levels of unemployment enforced on the PIIGS economies going to be politically acceptable to the good people of Europe and how will deflation play out?


Forgive and Forget Posted on 4th January 2015 


The idea of bailing out badly run economies is always unpopular but the Greece situation needs a more even handed approach that the Germans are able to provide.  We need a neutral broker to save the day.

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Floating free from Germany Posted on 27th November 


What is now required is a period where all Euro “currencies” float free against the German Euro for a fixed period and then re-join the single currency at more competitive rates, this would allow the EuroZone to avoid years of pain associated with the re-balance that is now a necessity.  This organised revaluation would probably be linked to the ejection of certain “currencies” from the EuroZone where a longer term fix might be required.  Without a strategy to re-balance in an orderly way the politics will become too painful and then anything might happen.  Once those re-joining do rejoin the German Euro the new harmonising institutions and mechanisms should be in place to sustain a new single currency.  The only alternative to this is for Germany to leave the Euro and leave the less productive and less prudent nations to sink gently into the abyss together - which is probably the first best option!

Solving Secular Stagnation Posted on 15th October

Learning from the Japanese experiments with QE and their ultra-loose monetary conditions over 25 years, should we modify our plan of attack on secular stagnation?  Maybe the first step must be to deal with asset prices (line A) and de-leverage (reduce debts) by raising interest rates - weird by interesting!


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Germany's best export is unemployment  Posted on 2nd September 2014

Having joined the Euro at a grossly undervalued rate the German economy has been on the PIIGS back for the last fifteen years.  The net result of this competitiveness advantage was that in the years 1999-2008 German was able to re-boot its ailing economy by exporting cheaply to its European Partners where all control of credits markets had lapsed.
The Germans are are still winning but now they are exporting unemployment and deflation to the rest of the EZ.  Paul Krugman sets out the history and today’s problem very nicely.  He tells us - During the years when Germany was gaining competitiveness (1999-2005), euro area inflation was running at around 2 percent, and inflation in Southern Europe was running considerably higher. So Germany could gain competitiveness simply by having lowish inflation. But these days German inflation is only one percent, euro area inflation is lower, and the only way for Southern Europe to gain ground is to have zero or negative inflation:

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European Huger Games. Posted on 7th February 2014

It's probable that Europe could find itself (like Japan has) in a “Deflationary equilibrium” this is where at zero interest rates we have falling prices and very high unemployment. A kind of Stagdeflation.  Basically the Eurozone is slipping towards the territory Japan has occupied  for the last 15 years
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The politics of austerity – north south divide. Posted on 7th July 2013

There are two threats to recovery in the Eurozone, one is rising interest rates an inevitable consequence of Europe being two years behind the US in the recovery cycle and the second is politics.  It could prove to be a long hot summer in the PIIGS economies and in the dusty hallways of the European Central bank (ECB).  The good people of Italy, Spain, Ireland, Greece and specifically Portugal are being asked to endure years (potentially a decade) of austerity.  This Lutheran penance is being applied on these warm blooded catholic nations by the iron will and ice cold determination of German and Dutch bankers supported by the EU and the IMF.  The cheer leader for this chilling approach is Jeroen Dijsselbloem, Dutch finance minister and president of the Eurogroup, the Eurozone’s finance ministers.  His determination that these indebted economies on the fringe of the Eurozone should bail themselves out at breakneck speed is at the heart of the politics. How long will Europeans accept 15% + unemployment before they choose to dump the Euro?

On the PIIGS back.  Posted on 15th July 2013


Today most Eurozone countries are going through the same pain that we went through in 1929 – 1931; sharply rising unemployment, uncertainty about the banks and burgeoning public sector debts.  Although the gold standard had no Central Bank and it did not float against other global currencies there are many similarities between the Eurozone construct and the old gold standard.
The first similarity is the constraint the single currency puts on currency values.  Within the gold standard there was no ability to flex exchange rates to help improve competitiveness and drive exports.  In the same way the Eurozone all economies are pegged to an exchange rate that was set when they joined.
The Euro is the new Gold Standard – let’s hope it ends differently?

Austerity may be wunderbar.  Posted on 26th September 2013

Five years on from the tsunami of the Lehman’s default and subsequent recession it’s probably a good moment to assess the relative merits of the monetary and fiscal strategies that developed countries have deployed to reboot their economies.  There have been a range of initiatives that have been tried but the “standout” response has been austerity, which can also be derived as a noun – austerian and there is even an antonym – Krugman.  In praise of austerity lite

On yer bike Posted on 31st October

There is a strong argument to say that single market for labour is broken, this is chiefly because there are wide variations in welfare allowances across the EU.  Some countries have a very generous approach whilst others do not.  To have a single market for labour the EU must set common minimum standards of welfare allowances for migrants in their first few years of residency.  These European standards must be the same for all nations and should cover:

The rich get richer and the rest of us get poorer, have we stepped back into dark ages

A grown up Germany needs a new partner.  Posted on 8th May 2013


What Europe needs is a counterweight to German industrial prowess, and without this there will be no peace, no Eurozone and no EU.  Casting around the Eurozone for alternative ballast is an unprofitable exercise?   Whilst it will be deeply unfashionable to say this, the obvious and only answer is to balance German industrial dominance with the UK’s equally mighty service industries; with these two towers of strength a mighty temple could be constructed.  And here is the opportunity for David Cameron, if he is genuine about his desire to renegotiate our contract with Europe (Germany), he may find that he is pushing on an open door.

David Cameron has the best opportunity in a generation to cut a new deal for the UK in Europe


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