There's a lot of meat in this post Slip. I need to read it again and digest it and do a bit of research. Thanks for tickling my brain. When I come back I'm going to tell Fran how his government should be running his country.
Ha! dj On Tue, Mar 23, 2010 at 11:37 PM, Slip Disc <[email protected]> wrote: > Tell us what you think after you check out this Interview conducted by > Thomas Tuma and Alexander Jung of Spiegel Online International > with......... > > Peter Bofinger, 55, a member of the German Council of Economic > Experts, a respected panel of five economists who advise the federal > government in Berlin. The economist, who lives in the Bavarian city of > Würzburg, founded a pro-euro initiative in 1997. > > AND > > Joachim Starbatty, 69, a professor emeritus in economics at the > University of Tübingen in southwestern Germany. In 1997, he and three > other academics filed a lawsuit against the introduction of the euro > at Germany's Constitutional Court, though it was ultimately > unsuccessful. > > The Interview is titled: > Bringer of Prosperity or Bottomless Pit? > Top German Economists Debate the Euro > > SPIEGEL: Mr. Bofinger and Mr. Starbatty, do you think it was a mistake > to introduce the euro? > > Peter Bofinger: No, of course not. Today, we live in a currency zone > that, despite everything, is significantly more stable than where the > dollar or yen are used. The euro has brought growth and prosperity to > Europe. > > Joachim Starbatty: Actually, the euro was a mistake with particularly > serious consequences. A monetary union requires its members to pursue > the same policies and be similarly productive. The so-called > convergence criteria were meant to ensure that this would happen. But > -- as the dramatic developments in Greece are now showing -- they > didn't. > > SPIEGEL: Do you feel vindicated today? > > Starbatty: Unfortunately, our fears have become a reality. The > monetary union was launched with real self-deception. > > Bofinger: Excuse me? > > Starbatty: The euro was sold to us as a modernization program for > Europe, and we were also told that it would push the Community toward > stability. But, in reality, it has drifted apart and become a truly > unstable entity. > > Bofinger: Unstable? The inflation rate has been very moderate, > hovering at around 2 percent since 1999, and it is significantly lower > than it was when Germany used the mark. We have a lower budget deficit > than the Americans, the Japanese and the British. Our debt-GDP ratio > is also lower than it is in the United States and Japan. There is no > reason why the euro should be coming under pressure. The decision to > introduce it was smart and far-sighted. > > SPIEGEL: Without any drawbacks? > > Bofinger: Sure, the euro zone is currently looking a little worse for > the wear. But that's to be expected, given the storm the global > economy has gone through. Still, thanks to the common currency, it's > no longer possible, for example, to wage speculative attacks on > individual currencies. This eliminates a key disruptive factor that > massively destabilized markets in the past. > > Starbatty: But that's exactly the problem! In the past, exchange rates > served as a valve. Individual countries could control their economies > by allowing their currencies to gain or lose value. Now, this > adjustment mechanism no longer works and, as a result, a completely > different sort of dangerous imbalance has emerged. Today, there are > two blocs within the monetary union: a strong currency bloc in the > north and a weak one in the south. The robust north has joined forces > with countries that have constantly devalued their currency throughout > their histories. Just look at the Italian lira, for example. At the > end of the 1950s, I paid 6.70 German marks for 1,000 lire. The final > exchange rate was less than one mark for 1,000 lire. > > SPIEGEL: What would happen if the old currencies were reintroduced in > the euro zone tomorrow? > > Bofinger: It would be a catastrophe. The German mark would have to > appreciate significantly -- I'd say by 10 percent to 20 percent. > Everything that we've worked so hard to attain in terms of > competitiveness would vanish overnight. There would be wailing and the > gnashing of teeth in Germany. And Europe would be making a serious > mistake if it were to revert to regionalism and nationalism during > this phase of advancing globalization. > > Starbatty: I see things completely differently. The euro was also sold > to citizens as an instrument for securing peace. I never understood > that because, if that really were the case, you would have to open the > monetary union to everyone. Instead, in light of its failure, we are > now witnessing just how nationalism arises in the first place. EU > flags have already been burned in Greece. > > SPIEGEL: Would it have been better if all countries in Europe had kept > their own currencies? > > Starbatty: Yes. A community can't function when it's made up of > unequal partners who are supposed to behave as equals. With the euro, > Germany has created an artificial competitive advantage for itself, > which has enabled us to conquer markets all over the world. But this > has also led to the buildup of massive excess capacity in our export > industries and, consequently, the export-oriented companies in the > southwestern state of Baden-Württemberg are hurting. The monetary > union changed the structure of economies in an unhealthy way. > > Bofinger: Oh, come on! You can't blame the euro for these imbalances! > The blame primarily lies with economic policies. Since 1995, there > have been almost no appreciable wage increases in Germany, partly as a > result of pressure brought on from increases in subcontracted labor. > Politicians have done everything to relieve employers of the burden of > paying social security contributions because we fell into this strange > panic, believing we weren't globally competitive. With our economic > policies, we placed too much of a lopsided emphasis on exports. The > Irish, Greeks and Spaniards, on the other hand, put too much emphasis > on domestic demand. > > 'Putting the Virtuous in the Dock Rather than the Real Offenders' > > SPIEGEL: In recent days, French Finance Minister Christine Lagarde has > repeatedly criticized Germany's export surpluses for being high > compared with those of other EU countries. Is she right to do so? > > Starbatty: No. I think it's strange that Madame Lagarde is putting the > virtuous, who have always been oriented toward stability, in the dock > rather than the real offenders. > > Bofinger: But the Germans have sinned just as much as the Spaniards, > for example. The Spaniards made their wages too high, while we in > Germany practiced the opposite by not increasing the purchasing power > of workers for years. > > Starbatty: So what? It made us successful. It arose from the concern > that jobs would migrate abroad. And Germany's moderate wage policy has > made the country attractive to companies again. > > Bofinger: You should look at it more holistically. We wouldn't have > been able to increase our exports if the other countries had behaved > like us and had not increased their demand for an entire decade. In my > view, the monetary union is like a relationship: To function properly, > its participants must orient their behavior toward the general good. > If each participant only contemplates his or her own benefit, it leads > to the kind of relationship crisis we are currently experiencing. > > SPIEGEL: Such crises occasionally also end in divorce. Would that be > an option at some point in the future for Greece, a euro-zone member? > > Starbatty: I think that step would make the most sense. The Greeks > should voluntarily leave the monetary union and reintroduce the > drachma. If they did, they would export more and could replace foreign > products with domestic ones. Likewise, tourists would travel to Greece > instead of Turkey because it would be the cheaper alternative. > > Bofinger: Excluding Greece from the Union would be the completely > wrong approach. Greece's problem is its inefficiency in terms of > public finances. That can be corrected. Compared with other countries, > Athens has always collected too few taxes. The government's budget > wasn't even balanced in the good years, when there was strong economic > growth. That's not the way to manage a country. Greece's government > could, for example, raise the top tax rate from 40 percent, where it > is today, to something much higher. After Germany's reunification, > when Helmut Kohl was chancellor, our top tax rate was 56 percent. > > Starbatty: And you seriously believe that would help? Following that > approach, the Greeks would save themselves to death, just as the > Germans did in the early 1930s under then-Reich Chancellor Heinrich > Brüning. What you expect the Greeks to do is Brüning squared. The real > problem is that Greece shouldn't have been accepted into the monetary > union in the first place. The country submitted doctored numbers, as > anyone who read the newspapers knew. And others did the same thing. > But officials in Brussels, who were worried that the Greeks would go > public with the fraud, said: 'Let's forget it!' > > Bofinger: But that's all water under the bridge now! We have to deal > with the current situation. In the Council of Experts, we proposed a > consolidation pact, under which each country would be required to > specify a fully verifiable path that it will follow as it puts its > financial house in order. It wouldn't just be a solution for Greece; > it would be for everyone. In return, the Community would be expected > to provide guarantees to problem countries that they will be able to > raise money in the capital markets at favorable, rather than extremely > high, rates. It's unacceptable that governments have spent the last > few years spending billions upon billions and incurring debt to save > the financial markets, only to see speculators push the countries out > of the monetary union. > > Starbatty: In my experience, speculators are only successful when > political promises diverge from economic reality, as has become clear > in Greece. Likewise, when it comes to assistance, I think we have a > clear legal framework, according to which neither any member state nor > the entire Union can be held liable for the debt of another member > state. > > SPIEGEL: You are referring, of course, to the famous no-bailout > clause. > > Starbatty: You, Mr. Bofinger, would eliminate this principle with a > stroke of the pen. If we help Greece now, we'll be opening a > bottomless pit. In that happens, the euro will be in far more trouble > because other countries will expect help. The monetary union will turn > into a transfer union. If that happens, my former colleagues and I > will take legal action again. > > Bofinger: But such a pact would be circumscribed to helping countries > help themselves. The idea now is not to buy Greek bonds. Rather, we > have to define clear conditions under which Greece and other countries > are to receive guarantees. But, there must also be an option to > terminate the guarantees if the rules aren't obeyed. > > Starbatty: Pacts are written on paper, but what's written isn't always > necessarily true. The Stability and Growth Pact for the euro was > originally much stricter, but then it was made less so. Nothing much > ever comes out of it when sinners discuss sinners. > > SPIEGEL: But government debt is still growing considerably. Doesn't > this also increase the risk of inflation? > > Starbatty: That's what I assume. Inflation would be an elegant means > of reducing debt, and many academics are discussing this scenario. But > it becomes truly problematic when government bonds eventually lose > their status as a safe haven. If China or Japan arrive at this > conclusion and sell their bonds, a bubble could burst that is far more > dangerous than any other bubble. If that happens, markets will plunge, > and interest rates will shoot up. > > Bofinger: Oh, Mr. Starbatty, the Chinese have no choice but to buy US > Treasury bonds. Otherwise, they would have to allow their currency to > appreciate significantly, and they would be more affected by the > decline in bond prices than anyone else. For the euro zone, at least, > what I see as being more likely is the risk of deflation -- in other > words, the risk of price declines on both fronts. If people are now > starting to save much more broadly, an enormous downward pressure will > inevitably develop as a result. > > Starbatty: But people aren't saving. Instead, countries are getting > into debt beyond all measure. If Germany's economy remains stagnant > and its 1.3 million short-time workers do not find regular employment > again, government deficits will rise again, and inflationary > expectations will grow. > > Bofinger: Government debts don't automatically lead to inflation, as > has been shown by developments in Japan over the last two decades. The > European Central Bank would never, ever contemplate using inflation to > eliminate debt. And even if people did start spending their money out > of fear of inflation, at least the factories would finally be > operating at full capacity again. In other words, that wouldn't be a > tragedy, either. > > SPIEGEL: Turbulence in the financial markets has also created a > credibility problem for people in your line of work. Hardly any > economists predicted the fatal problems. > > Starbatty: That's true. Many of us put too much stock in numbers. But > mathematical models can't depict complex realities. > > Bofinger: On that, I agree with you completely. We have to realize > once again that economics is a soft rather than a hard science. > > SPIEGEL: Do the two of you actually believe that the euro will still > be around in five years? > > Bofinger: I'm sure it will be. Every crisis creates an opportunity, > and that should also apply to this special relationship crisis. This > assumes, however, that officials in Brussels will refrain from > pointing fingers at each other and will finally hammer out a joint, > coordinated approach. > > Starbatty: That's not enough. If we drag the Greeks along now, other > member states will also push for financial assistance. And then the > monetary union will crumble. The only thing that isn't clear is when > this'll happen. > > Bofinger: Then you would probably agree with the great British > economist John Maynard Keynes, who said: 'In the long run, we are all > dead." Then there will be no one left to review things. > > Starbatty: I'm afraid it won't take quite that long with the euro. > > SPIEGEL: Mr. Bofinger, Mr. Starbatty, thank you for this interview. > > -- > You received this message because you are subscribed to the Google Groups > ""Minds Eye"" group. > To post to this group, send email to [email protected]. > To unsubscribe from this group, send email to > [email protected]<minds-eye%[email protected]> > . > For more options, visit this group at > http://groups.google.com/group/minds-eye?hl=en. > > -- You received this message because you are subscribed to the Google Groups ""Minds Eye"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/minds-eye?hl=en.
