On May 7 2012, Jens Weidmann, the president of the Deutsche Bundesbank published an article in the Financial Times titled “Monetary policy is no panacea for Europe’s ills“. From the title one might expect to read a series of well-documented arguments forwarding the thesis point of the article. However in Mr Weidmann article this is not the case. Instead it is a text replete with misleading remarks and quasi-moralistic demands. His suggestions are in fact used to present in a good light the policy of his institution -the Bundesbank- and the overall approach of the German government to the crisis.

I could comment upon each and every paragraph of his article, at the risk of frustrating the reader, but instead of doing so I will only focus on the following pontification of Mr Weidmann, which is enough to destroy his case. As an introductory remark, allow me to say that in truth his article has nothing to do with monetary policy. It rather is a litany of normative statements arguing how prudent central banks have been, how important their independence is and why governments ought to implement austerity measures (emphasis on the quote is mine):

…[T]he funding of banks that are not financially sound or against inadequate collateral would shift substantial risks between national taxpayers. Such implicit transfers are therefore beyond the mandate of the eurozone’s central banks. Rescuing banks using taxpayers’ money is something that can only be decided by national parliaments.

There is much that is wrong with this statement. Above all it reproduces the erroneous rhetoric of “transfers”, implicit or not, with a clear intention to practically suggest that German taxpayers are in one way or another bailing out the banks of the GIIPS. Nothing could be further from the truth. The word “transfers” either implicit or explicit, direct or indirect, is an imposter term when speaking about the operations of the monetary system. What Mr Weidmann, and the other devoted “ordoliberals”, call “transfers” are just the normal, daily operations of any currency union operating under a fiat monetary system. (more…)

I have been ruminating recently on the key questions that divide Greek society over the economic crisis; the issues that raise controversy among political parties; the actual steps that need to be made for the country to finally move from here to there; from near disintegration, to a stable state where the common good will prevail over short-sighted party politics. What I have realized is that the core issues have not been addressed, in any comprehensive sense. Instead the debates are confined within sterile exchanges of competing slogans and other attention-getting devices, which lack content. Not a single party has ever presented a coherent strategy of the steps to be followed henceforth. I am not speaking of any particular orientation, pro-memorandum or anti-memorandum, pro-EU or anti-EU, neoliberal or socialist etc. I am referring to the complete absence of any viable proposals to the Greek people, of feasible alternatives. (more…)

Image source: Skai.gr

The national elections in Greece on May 6, 2012 brought seven parties in the parliament. The first feeling one gets is that of uncertainty about the future. Five out of the seven parties have a clear anti-austerity, anti-memorandum agenda, while ND, the party with the most seats claims that it wants to “renegotiate” the terms of the bailout programme. Given that no single party has secured a majority of seats in the parliament, a coalition of forces is necessary to form a government. However with the diversity of views now represented in the new parliament, such a coalition will be hard to find, while there can be no safe predictions about a possible government agenda for the time being.

The first observation one can make is that almost 35% of the voters did not turn out to cast their vote. In times like these this can either be interpreted as a sign of disgust and anger towards the political system that brought the country to this position, or as a sign of ignorance, complacency and indifference. I hope it is the former, though I cannot rule out the possibility that the latter holds true.

The second observation, is that the two traditionally dominant parties of the conservative ND and the social-democratic PASOK have suffered major loses in terms of the percentages they enjoyed in previous years, when they could easily secure a majority of seats. Now they have received roughly a third of the votes they used to get. Their bipolarity that governed Greece ever since the fall of the military junta in 1974 is now over. In my view this is a positive sign. The Greek people seem to have realized that the graft and corruption unearthed by these two parties can no longer be tolerated, at least not to the same extent. The next step will be to see the exemplary punishment of all those who were responsible for bringing the country to this position. (more…)

The Dutch coalition government collapsed just a few days ago, due to its failure to reach a compromise over a budget that would comply with the Maastricht fiscal criteria of the 3% deficit and 60% debt. According to the German newspaper Bild, this makes the Netherlands the 8th country whose government fell over eurocrisis-related issues.

I recall that back in September 2011 Mark Rutte, the Dutch Prime Minister, called for an expulsion of Greece from the eurozone, due to the alleged inability of the Greek authorities to comply with the rules of the EU and the demands from its trio of lenders – the “troika” (EU-ECB-IMF). At the time articles where written, tv and radio shows were broadcasted, praising the Dutch premier for his audacity to “finally” break a “taboo”. (more…)

Throughout many of my writings on monetary affairs one can identify my abhorrence of inflationary policies. One can detect my distaste of the professorial palaver and the humbuggery of political pontification that promote them. My opposition to inflationism takes place on many levels. On the purely academic/economic I find the macroeconomics underpinning these views as inherently flawed and fallacious. False methods and unrealistic assumptions that have been consciously distorting the reality of human action in favor of mathematical conveniency and algebraic manipulation, resulting in those magical arcs and curves that supposedly depict human behavior and the mechanics of the economy. On the political level, I always feel an inclination to commit mayhem whenever inflationary policies are presented as beneficial for the lower parts of the income distribution. Whenever they are embellished with pseudo-socialistic oratory that ostensibly favors the hard-working people who toil against the markets and the speculators. (more…)

There is this long-standing belief in political thought that society can get rid of interest. That interest is a parasitical cost that we as benevolent human beings can abolish if we intend to. The road to a perfect society or at least to a much better world, inevitably passes through a stage of eliminating all interest payments. Such a view has made itself manifest over the centuries in various ideologies, movements and philosophical doctrines. Not surprisingly perhaps, it started with the ancient Greeks and one of their greatest philosophers, Aristotle. In his proto-economic discussions, which included some correct insights, he made the unfortunate mistake of adding a moralistic dimension to an otherwise real world phenomenon, suggesting that interest was unnatural. Had he escaped from the ancient Greek philosophical moralism, he a genius as he undoubtedly was, could have instead attempted to answer why did interest exist in the first place.

The most recent incarnation of this ancient-old tradition can be found in the calls of several politicians or groups on the European Central Bank to supply credit directly to governments, ideally at 0% interest. They argue that the ECB should help countries combat the crisis, instead of speculating against them. They assess that the independence of the ECB from the plans of member-states is purely wrong, since it deprives governments from essential monetary policy tools that could help in ameliorating the chilling effects of the economic crisis. These views purport to show that the ECB, with the interest it adds on the money it creates, is an institution that only supports the machinations of speculators, greedy bankers and other sinister forces that operate to the detriment of the people. (more…)

Many neoclassical macroeconomists uphold that a higher inflation rate in the eurozone in the range of 5-6% constitutes a large part of the remedy to the ongoing crisis. It is those people who were happy with the LTRO among others, while they remain the most vociferous critics of the “stingy” monetary policy of the ECB, arguing that more money should be printed. They argue that a higher inflation rate in the eurozone will be beneficial since it will have the twofold effect of first reducing the real value of debts, thus easing the broader deleverage of the European economy; and second of creating “money illusion” or “spending illusion” that will lead people down the garden path of spending their money instead of “hoarding” it, either because they will think that they have more money or due to negative expectations about the future value of their cash. Though it is correct that inflation diminishes the real value of nominal debts while it is also true that high inflation makes saving money more costly than actually spending it, since the future value of the money will be less than the present–inflation is like a negative interest rate on cash–the assumptions underpinning this rationale are inherently flawed and fallacious. (more…)

A freshwater ecosystem in Gran Canaria, an island of the Canary Islands. Image credit: Wikipedia

I recently came across a document attempting to offer an overview of the causes of the Great Recession, while underlining the alleged weaknesses, flaws and omissions of the system. After reading its fallacious arguments and unexamined shibboleths I shall make mention to the fundamental problem of economic calculation central planers and their macroeconomics face, by mentioning one assertion of the paper, characteristic to bureaucratic, ideological reasoning; namely that (emphasis mine) “ecosystems are capital assets and the ecosystem services have great economic value… which is not reflected in the market“. (more…)

Following up my last article on European identity and how direct taxation can produce the necessary power impulse towards the creation of a European public sphere, I shall elaborate on the distinction that needs to be drawn between the traditional types of national identity and the new form of conventional, parallel identity that can be developed within the context of European integration.

For a better perspective, references will be made to history and the various emanations of identity as these have appeared in different epochs, in order to illustrate my point that in our times the metaphysical essentialism of the past is useless and thus a more pragmatic approach has to be taken for the construction of a European identity. (more…)

Image Credit: Flickr (Creative Commons)

Regardless of ideology, we Europeans more or less agree that the current order of the European Union is suboptimal. We all identify numerous flaws and wish to see reforms in many areas either that be the (growing) democratic deficit, or the distance EU institutions, except Parliament perhaps, have from the desires, motives and scrutiny of the citizens; or even the bureaucratic sclerosis in all Community affairs; among many others.

The midpoint of these issues is the fact that the EU is not a state but rather a political UFO that has evolved into its current form through decades of incrementalist integration. Though many steps can be made to improve each of these flaws, it is widely accepted that the establishment of a political union in Europe – a genuine state, regardless of actual form – would have been the single most important step forward. Yet it is undeniably true that a political union cannot be established for as long as the conditions are not mature enough and for as long as crucial prerequisites are completely absent. (more…)