Nobel Economists Say Policy Blunders Pushing Europe Into Depression

[Sancho Panza]

Telegraph 21/8/14

'An array of Nobel economists have launched a blistering attack on the eurozone's economic strategy, warning that contractionary policies risk years of depression and a fresh eruption of the debt crisis.

"Historians are going to tar and feather Europe's central bankers," said Professor Peter Diamond, the world's leading expert on unemployment.

"Young people in Spain and Italy who hit the job market in this recession are going to be affected for decades. It is a terrible outcome, and it is surprising how little uproar there has been over policies that are so stunningly destructive," he told The Telegraph at a gathering of Nobel laureates at Lake Constance.

"It could be avoided with better use of stimulus, and spending on infrastructure. That would boost growth and helped the debt to GDP ratio," Mr Diamond said, echoing a widely-heard critique among the Nobel elites that Europe's policies have been self-defeating.

Professor Joseph Stiglitz said austerity policies had been a "disastrous failure" and are directly responsible for the failed recovery over the first half of this year, with Italy falling into a triple-dip recession, France registering zero growth and even Germany contracting in the second quarter.

"There is a risk of a depression lasting years, leaving even Japan's Lost Decade in the shade. The eurozone economy is 20pc below its trend growth rate," he said.

Mr Stiglitz said the eurozone authorities had massively underestimated the contractionary effects of austerity and continue to persist in error despite claims that the crisis is over. "I am very concerned about the future of monetary union, and they haven't yet felt the impact of geopolitical tensions."

He said the eurozone needs joint debt issuance to repair the structural flaws of EMU, but almost no progress has been made. "Europe suffers from fatal politics," he said.

German Chancellor Angela Merkel told the forum that it was hard to manage a currency for 18 states, when sovereign parliaments refuse to follow polices agreed by the EU institutions. Yet she insisted that the crisis countries had slashed current account deficits and the "first fruits" of durable recovery are in sight.

Professor Christopher Sims, a US expert on monetary policy, said EMU policy makers had not sorted out the basic design flaws in monetary union, and are driving Club Med nations into deeper trouble by imposing pro-cyclical austerity.

"If I were advising Greece, Portugal or even Spain, I would tell them to prepare contingency plans to leave the euro. There is no point being in EMU if all that happens when you are hit with a shock is that the shock gets worse," he said.

"It would be very costly to leave the euro, a form of default, but staying in the euro is also very costly for these countries. The Europeans have created a system that is worse than the Gold Standard. Countries are in the same position as Latin American states that borrowed in dollars," he said.

Mr Sims warned that the European Central Bank may not be able to carry out a mass of purchase of bonds unless the eurozone grasps the nettle on fiscal union, and might itself be engulfed by crisis. "A speculative attack could put the ECB balance sheet at risk," he said.

In the end, ECB president Mario Draghi may be forced to intervene and present Europe's political leaders with a fait accompli.

"The Germans don't want the euro to collapse, so if they really need a fiscal back-up in a crisis, they'll come up with it somehow," Mr Sims said.'

I'm sometimes stunned by the logic these eminent economists use eg the solution to a debt crisis is more debt.Didn't Keynes suggest that the key to good economic management was to save a little during the good times and then spend that during the bad times.

They also are clearly stunned at the revelation that having one interest rate for 18 countries hasn't worked and warn that some may have to bail out as if they're letting us mere mortals in on a big secret.

Shaun Richards had a good piece out yesterday on the prospects of a base rate rise where he mentioned the fate of the £375bn QE assets

'Oh and it is interesting to note is it not that no-one appears to want to do anything about the £375 billion of asset purchases or Quantitative Easing? A bit like an embarassing relative it is being left to sit in the corner on its own. In the current international dash for yield the Bank of England could sell some of it off surely?'

The Nobel panel should take a look in the mirror and maybe give the economics prize to someone who actually foresaw this event.

Rant over.

[TheCountOfNowhere]

I read this as....Banker puppets press for Q.E.

Am I wrong ?

I look forward to the day the ECB announce Q.E. just to see what the German people do. I suspect the decision would be quickly reverse.

Edited August 21, 2014 by TheCountOfNowhere

[interestrateripoff]

Over capacity meets lack of demand. WTF did they expect? How much tat and services does one person need??

I have the Internet on my land line and I have it on my mobile. Are you going to sell me the net to my watch? ?? Why the feck would I want the Internet on my watch when I have it on the phone?

[TheCountOfNowhere]

Over capacity meets lack of demand. WTF did they expect? How much tat and services does one person need??

I have the Internet on my land line and I have it on my mobile. Are you going to sell me the net to my watch? ?? Why the feck would I want the Internet on my watch when I have it on the phone?

Why do you need a watch when your phone works as a clock/alarm/stop watch/time ?

[Killer Bunny]

So, more bailouts, more QE, more HPI, more govt etc etc etc

FFS!

#bringbackcapitalism #banQE #banbankbailouts #letmktsetrates

[TheCountOfNowhere]

So, more bailouts, more QE, more HPI, more govt etc etc etc

FFS!

#bringbackcapitalism #banQE #banbankbailouts #letmktsetrates

The eurobankers must be looking at the british bankers with envy and what a success our QE has been at making them all richer.

I wonder if they'll think the same if we see mass protests and the odd banker being strung up.

Edited August 21, 2014 by TheCountOfNowhere

[dances with sheeple]

Over capacity meets lack of demand. WTF did they expect? How much tat and services does one person need??

I have the Internet on my land line and I have it on my mobile. Are you going to sell me the net to my watch? ?? Why the feck would I want the Internet on my watch when I have it on the phone?

Yes, and then to a headset for sitting on the bus, or even to use while driving. What did you think they were going to do, just stop when everyone had it on their phone?

[zugzwang]

We've spent forty years following the Neoclassical/New Keynesian prescriptions of intellectual imposters like Stiglitz and Krugman. It is their degenerate research program which is responsible for the Second Great Depression.

[sPinwheel]

What does an economist do?

[billybong]

I read this as....Banker puppets press for Q.E.

Am I wrong ?

I look forward to the day the ECB announce Q.E. just to see what the German people do. I suspect the decision would be quickly reverse.

+1

They'd be crazy to introduce QE when real prudence has been so beneficial to them.

QE would likely be the sharp end of the wedge to decline. Maybe that's the stealth plan.

[porca misèria]

Over capacity meets lack of demand. WTF did they expect? How much tat and services does one person need??

I have the Internet on my land line and I have it on my mobile. Are you going to sell me the net to my watch? ?? Why the feck would I want the Internet on my watch when I have it on the phone?

Why would you want a phonewatch when you have a watchphone?

Convergence!

[TheCountOfNowhere]

Instead of listening to "Nobel economists" maybe we should be listening to "Noble economists".

[bankstersparadise]

#letmktsetrates

The collective wisdom of the entire globe is too stupid to set market interest rates. Therefore the task must be done by a divine chosen few.

[Sancho Panza]

What does an economist do?

Take a fat salary,live in an ivory tower and then claim a taxpayer funded pension for their genius?

[bankstersparadise]

Mr Stiglitz said the eurozone authorities had massively underestimated the contractionary effects of austerity and continue to persist in error despite claims that the crisis is over. "I am very concerned about the future of monetary union, and they haven't yet felt the impact of geopolitical tensions."

He said the eurozone needs joint debt issuance to repair the structural flaws of EMU, but almost no progress has been made. "Europe suffers from fatal politics," he said.

Mr Stiglitz was senior economist for Bill Clinton when he repealed Glass-Steagall.

Stiglitz has a lot of blood on his hands.

[Executive Sadman]

All I see is the same thing in the stimulated UK and austerity EU. The overall effect is the same. The symptoms different. They have some more unemployment than us (although given self(non)employment here, the fact youth unemployment is massaged down due to everyone being in education until their mid 20s, I don't think its that different here compared to the southern EU) we have wage destruction.

[bankstersparadise]

the fact youth unemployment is massaged down due to everyone being in education until their mid 20s

The data disproves your assertion:

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/File:Median_age_in_tertiary_education,_2011_(1)_(years)_YB14_I.png.

Kids in this country have it bad, but the kids in peripheral Europe have it worse.

Their futures are being mortgaged so their grandparents can keep their gold-plated 1000 Euro per month pensions that they can ill-afford.

[NewBrit]

What does an economist do?

Economics.

[Executive Sadman]

The data disproves your assertion:

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/File:Median_age_in_tertiary_education,_2011_(1)_(years)_YB14_I.png.

Kids in this country have it bad, but the kids in peripheral Europe have it worse.

Their futures are being mortgaged so their grandparents can keep their gold-plated 1000 Euro per month pensions that they can ill-afford.

It may do, it may not. For all I know, that graph only includes people actually in tertiary education. It may exclude those outside who have opted for the world of work (or unemployment!).

Bit like Haliwide saying houses are affordable because the average FTB salary of mortgages they issue is over £40,000 (ie it only counts those approved for mortgages, not those frozen out)