Deflation Über Alles

Michael Stephens | July 15, 2015

The “negotiations” that surrounded the latest Greek deal do not reflect well on the system (such as it is) of EMU governance. And there are no silver linings to be found in the outcome of this process. It is a testament to how far we are from “normal” that even the best-case scenario would have left little room for optimism. Even if Greece had received a sensible package — one involving debt restructuring and a pause in austerity — this would still have meant an intolerably long period of high unemployment. (“Even if the Greek economy were to miraculously bounce back to its precrisis growth rate, it would take almost a decade and a half to return to precrisis employment levels.” p. 3 [pdf])

Moreover, the particulars of the Greek situation aside, it is important to recall how far we are from a resolution of the broader eurozone crisis, which will arguably not end until the fundamentally flawed euro setup — of which the Greek crisis is a symptom — is addressed. In this vein, Pavlina Tcherneva recently spoke to Richard Aldous of The American Interest about the latest Greek deal and the “stateless currency” that is the euro (listen to the podcast here).

Tcherneva also touched on an aspect of this broader theme in her recent RT interview. In the clip below she links the “deflationary environment” in the eurozone to the absence of a central fiscal authority:

 

 

(See here for a proposal for Greece that aims to [temporarily] relieve the constraints rooted in the divorce of fiscal policy from monetary sovereignty: by funding a direct job creation program through the creation of a parallel currency.)

National animosities and idiosyncratic personalities aside, the blame for the underlying crisis ultimately falls on the very structure of the EMU. This is why it was possible for figures like Wynne Godley to have seen this coming decades ago.

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