The Euro Zone Is A Slow-Motion Train Wreck

[koganbot]

"'The euro zone is a slow-motion train wreck,' Mr. Roubini said during a separate panel discussion."

Slow-wreck aficionados will note that this is better than a couple of months ago, when Europe was on the train-wreck fast track owing to the ECB's then-unwillingness to purchase Spanish and Italian bonds.*

Confused centipede attempts to mate with mealworm pupa


*It's not directly purchasing them now, but, according to Krugman at any rate, it's doing the functional equivalent, essentially laundering the purchases through banks.

Comments

[dubdobdee.livejournal.com]

dsquared on this thread -- daniel davies -- is I think making a significantly different argument, re the EU's competence of response and etc, to the Greek problem (in ref what they'v actually done, can legally do, etc).

http://crookedtimber.org/2012/01/30/the-medicine-is-killing-you-take-some-more/

[koganbot]

Different argument from what? That is, would either Krugman or Roubini disagree with this from Davies:

IMO the valid criticisms of the EU policy structure would be something like

f) their continued insistence on 'structural' measures which have basically nothing to do with the problems they are meant to solve and which can only be explained as holdover neoliberalism

g) their apparent state of denial over the need for a proper rewrite of the ECB treaty and the fundamental legal basis of EMU (although I am actually never sure how much denial they are actually in here)

h) the constant iteration of completely unrealistic forecasts. In general, wasting time for the first two years of the crisis on confidence-fairy reasoning.

i) As Niamh correctly notes, regular bouts of complete political tone-deafness in the handling of the difficult and sensitive matter of transferring fiscal independence.

Of course, I don't know what Roubini would say, barely having read him, and I don't know all that much what Krugman would say either, not really having understood him. But my guess is that if Davies' argument is that actually the EU functionaries and policy makers generally do have a decent idea, at this point, of what needs to be done and are doing their best, given the political and treaty constraints, to do it, that doesn't mean that they can do it — given the political and treaty constraints. And the political constraints are that in general most Europeans don't know what should be done. That's what a whole big hunk of the "political constraints" are. And also, given the fact of the currency union and that the European labor force doesn't have nearly the mobility of the American, would rewriting the treaties be enough to solve the problem that (a) none of the periphery countries in the monetary union can devalue their currency, since they don't have their own currencies, (b) the periphery countries need somehow for there to be increased demand for their goods and services, and (c) the labor force in those countries can't pick up and leave for other parts nearly as easily as the labor force in Miami (whose economy is about the size of Greece's) or Las Vegas can?

So Roubini, let's say, can see what Davies sees and nonetheless believe that Elvis has left the building, the train is already running off the track, etc. I'm gathering from that thread that Davies isn't as pessimistic, but I'm not sure where the nonpessimism is coming from.

Also, Greece is in a different boat — er, boxcar — from the other countries, apparently. But, e.g., is getting Greece's shit together in regards to tax collection and creating realistic budgets going to help the Greeks find markets for their goods and services? (Not a rhetorical question, even though I assume the answer is "No.")

I didn't have time to read the whole thread, merely did a Ctrl-f on "dsquared," so am not getting the nuance of the discussion, having to infer mostly from Davies' posts what he's reacting to. Wouldn't get the nuance of the discussion anyway, given my poor understanding of finance.

[koganbot]

And here's Krugman today on Eurozone problems, with a real basic summary of his argument, plus graphs:

http://krugman.blogs.nytimes.com/2012/01/30/eurozone-problems

Without graphs:

(1) "the overall economic crisis is driven by private debt, not public debt"

(2) "huge swing of the private sector into financial surplus, which necessitated large public deficits to avoid a much deeper slump"

(3) "Europe... has the additional problem of a capital flow bubble from north to south induced by the euro, which has to be reversed"

(4) "The counterpart of these current account imbalances was a large divergence in relative price levels"

(5) "Implicitly, Europe is relying on 'internal devaluation' to reverse this divergence. But the reality is that this is very hard given nominal rigidity, even in Ireland, which is wrongly held up as an example of successful adjustment"

(6) "Europe has bought into the notion that fiscal irresponsibility is at the heart of the crisis, which is true only of Greece and not true of the troubled countries as a group"

(7) "even on the IMF's reckoning, none of the austerity countries is plausibly on the road to a tolerable fiscal situation"

[koganbot]

Krugman recommends as "very good" a Crooked Timber piece by Davies (which I haven't had a chance to read yet, but presumably Krugman doesn't take issue with Davies' ideas about what's happening in Greece):

http://crookedtimber.org/2012/02/16/so-what-would-your-plan-for-greece-be

[dubdobdee.livejournal.com]

Yes, I too very much recommend this post and have been planning to post something about why at my NEW BLOG (except it's not yet ready or unveiled: I'll send you a link when it is).

I still think there's a fundamental disparity of approach or "philosophy" between D^2 and Krugmanbot, so I'm not entirely persuaded, even when they're now and then on the same page, that they're "coming from the same place". KM is a high-end US academic and theorist; D^2 a small-p pragmatic technician from within the heart of the UK banking industry, who's repeatedly argued (for example) that the freshwater/saltwater feud is not really a useful framework to understand or explain the choices actually being made on the ground in the EU.