Archive for September, 2017

IMF Provides Cover for Europe’s Dysfunctional Currency Union

Jörg Bibow | September 20, 2017

The Council on Foreign Relations’ Brad W. Setser has produced a couple of interesting blogposts on Germany’s fiscal policies of late. The first one, titled “Germany Cannot Quit Fiscal Consolidation,” was published at the end of August. On September 18th, the second one appeared, titled “The Global Cost of the Eurozone’s 2012 Fiscal Coordination Failure.”

The latter is more limited in scope and draws heavily on a recent report by the Banque de France. Setser elaborates on the rather obvious point that the eurozone’s attempt at fiscal austerity in the years 2011–13, when the currency union experienced the second leg of its double-dip recession, was counterproductively harsh:

The consolidation observed between 2011 and 2013, based on the overall change in the primary structural balance of general government, is now estimated by the European Commission at almost 2.9% of potential GDP…the fiscal effort was 1.5 percentage points of GDP in 2012. (Banque de France 2017)

Corroborating the Banque de France’s analysis, Setser points out correctly that there was no sound economic case for Germany to embark on austerity just at the time when it also demanded this form of self-sacrifice, in the name of the “credibility” of the euro regime, from its euro partners. If anything, Germany should have continued with at least mildly expansionary fiscal policy to keep the eurozone’s recovery on track and enable its internal rebalancing. Setser chides the Banque de France for not mentioning that France, too, could have somewhat lessened and delayed its own fiscal tightening to support the regional growth momentum at a critical time.

It is certainly very interesting that the Banque the France today finds the courage to present an argument that implies a severe critique of Germany’s fiscal folly. Perhaps it felt inspired by the fresh spirit of the republic’s new president. Perhaps open debate will also help official Europe to finally catch up with the realities of truly enormous collateral damages caused by its flawed policy doctrines of “growth-friendly” austerity and structural reform. As it stands, the eurozone is at high risk to repeat past mistakes as soon as its current stream of good luck runs out.

The more recent blogpost also echoes Setser’s main concern analyzed in the earlier blogpost of late August: global rebalancing. continue reading…


Event: Strategizing a New New Deal

Michael Stephens | September 8, 2017

If you’re in the vicinity of New York City at the end of October, Levy scholars Randall Wray and Stephanie Kelton are taking part in a public meeting organized by the National Jobs for All Coalition. The meeting is part of a series of public events focused on the legacy of New Deal.

Wray and Kelton will be participating in a panel on the job guarantee — “Political and Economic Prospects for Achieving a Federal and a New York City Job Guarantee” — alongside Philip Harvey and Darrick Hamilton (who was recently recognized by Politico for his work on the job guarantee).

The event is hosted at the New School (Oct. 27) and Columbia Law School (Oct. 28). You can download the flyer and program here. For registration and other details, see here.