Há sempre alternativa

A União Europeia confronta-se com uma crise de legitimidade que se tem acentuado com o avolumar de contradições que podem ser melhor compreendidas, por exemplo, no contexto do debate que opôs Karl Polanyi a Friedrich Hayek e que colocou a economia reconfigurada em função de uma ordem social democrática e igualitária contra um neoliberalismo onde as estruturas não mercantis são valorizadas apenas na medida em que forem instrumentais ao alargamento da esfera de ação dos mercados.

No discurso de Thorstein Veblen dir-se-ia que os valores do cerimonial económico do modelo de governação em crise de legitimidade são os de uma religião onde o mercado é central e ao qual todos os restantes factores da economia, incluindo o trabalho, se subordinam; os de um regime de globalização que permite às grandes empresas transnacionais interferir na capacidade democrática de organização colectiva; os de uma cultura de consumismo ostensivo associada a uma emulação pecuniária que impede a prossecução de objectivos racionais e equitativos de provisão geral; os de um sistema financeiro com lógica de casino; os de um sistema industrial marcado pelo desperdício e pela sabotagem.

Quando a partir do final de 2007, em sequência de um longo período de especulação financeira praticamente irrestrita, a mão invisível começou a faltar ao encontro com o equilíbrio prometido e os EUA, primeiro, e a Europa, logo a seguir, mergulharam numa crise que só encontra paralelo na Grande Depressão de 1929, os mercados desregulados não só não rejeitaram a intervenção do Estado como dela inteiramente dependeram, tendo o colapso certo sido (provisoriamente?) evitado com quantias absolutamente gigantescas de dinheiro público; longe de produzirem a prometida prosperidade universal, os cortes na despesa pública que se seguiram mais não fizeram que aprofundar a crise.

Na zona Euro, o endividamento público caiu de 72% para 67% entre 1999 e 2007 (início da crise financeira) enquanto o endividamento das instituições financeiras, no mesmo período, aumentou de menos de 200% para mais de 250% do PIB; ao contrário do que afirma a narrativa ainda dominante, a explosão na dívida pública que se verificou a partir de 2007 resultou da necessidade de socorrer o sector privado, e em particular o subsector financeiro, e não o contrário.

Na Europa e em Portugal, a crise resulta essencialmente da arquitectura disfuncional de uma moeda única que, desenhada na crença da tendência sistémica para o equilíbrio das economias onde o estado está ausente, pressupõe que o trabalho, assumido como variável única de ajustamento, é uma mercadoria como outras.

Ao contrário do que afirma a utopia neoliberal, o trabalho não é mercadoria e nenhum modelo de governação que o pressuponha pode subsistir; nas palavras de Karl Polanyi, “[t]rabalho é apenas outro nome para a atividade humana que é a vida em si mesmo” e “[p]ermitir que o mecanismo de mercado seja o único administrador da sorte dos seres humanos e do seu ambiente natural, ainda que apenas no que diz respeito à quantidade e uso de poder de compra, resultaria na demolição da sociedade”. 

A 15 de Setembro último, a sociedade defendeu-se do extremismo mercantil e uma massiva manifestação de descontentamento popular, exigindo alternativas, rompeu o fabricado consenso austeritário. Agendado para 5 de Outubro próximo, o Congresso Democrático das Alternativas propõe-se reunir ‘todos os que sentem a necessidade e têm a vontade de debater e construir em conjunto uma alternativa à política de desastre nacional consagrada no memorando da troika’. Lá estarei; peço-te que ponderes, também, a tua presença.

*Texto também publicado no sítio do Congresso Democrático das Alternativas.

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Austeridade e Balanços Financeiros Sectoriais

Desincrustada da sociedade, a tal economia de mercado, que tende para o equilíbrio desde que o Estado não estorve, criou na América do Norte e na Europa esta interessante circunstância: “(…) excess debt has created a situation in which everyone is trying to spend less than their income. Since this is collectively impossible — my spending is your income, and your spending is my income — the result is a persistently depressed economy (…)”.

E agora?

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Moment of truth for the eurozone

The biggest question in any debt crisis is whether a credible path back to solvency can be found. For Greece, this now seems very unlikely. The same is true, to a lesser extent, for Ireland and Portugal. This raises three further questions. First, how big is any required restructuring? Second, who should bear the cost? Finally, is restructuring enough? If the answer to the last question is No, then one has to ask whether the currency union will last in its current form.

On the first of these questions, an analysis by Citigroup provides a negative answer. According to this analysis, by 2014 the ratio of gross debt to gross domestic product will have risen to 180 per cent in Greece, 145 per cent in Ireland and 135 per cent in Portugal. In none of these cases will the debt ratio start moving downwards over this horizon. Spain looks far better, with a debt ratio at about 90 per cent of GDP in 2014, though its path, too, will not have turned down. (See chart.)

The assumptions behind these forecasts are: a cumulative fiscal tightening between 2011 and 2014, inclusive, of 10.8 per cent of GDP in Greece, 8.3 per cent in Portugal, 7.3 per cent in Ireland and 5.7 per cent in Spain; interest cost of new funding rising from close to 5 per cent to 5.6 per cent in 2014 for Greece, Portugal and Ireland (determined by a weighted average of rates from the International Monetary Fund and the European Financial Stability Fund) and higher rates for Spain, since the latter will rely on the market; and, finally, privatisations and bail-outs. The analysis also assumes that a percentage point of fiscal tightening would lower growth by half as much.

Assume that these countries could borrow affordably in private markets at a gross debt ratio of 80 per cent of GDP. Assume, too, that European governments ensure that the IMF takes no losses. Then, the reduction in value of the rest of the debt would need to be as much as 65 per cent of GDP for Greece, 50 per cent for Ireland and 45 per cent for Portugal. The total “haircut” would be €423bn: €224bn for Greece, €107bn for Ireland and €92bn for Portugal.

One can quibble over the figures: these may be too pessimistic. But, without a big restructuring, these countries are now most unlikely to be able to finance themselves in the market on bearable terms. That is also what markets are saying: spreads on 10-year bonds over yields on German Bunds are 1,340 basis points, or 13.4 percentage points for Greece, 875 basis points for Ireland and 818 basis points for Portugal. This is why they are all now in official programmes. Worryingly, spreads for Spain are also now uncomfortably high, at 240 basis points, while those for Italy have reached 190 points. The eurozone, in short, is confronting a frightening sovereign debt challenge, aggravated by the dependence of its banks on support from its states and of its states on finance from its banks.

Now turn to the second question: who should bear the losses? If all the haircuts were to fall on private creditors, their losses in 2014 would be 97 per cent of their holdings of Greek debt, 63 per cent of their Irish debt and 60 per cent of their Portuguese debt. Official creditors would, by then, have to bear a substantial part of the total losses. Since governments would also need to bail out some of the holders of the restructured debt, particularly the banks, the eurozone would be revealed as a “transfer union”. Note, moreover, that this would occur despite a big fiscal effort in the affected countries. But even that would be insufficient to reverse the unfavourable debt dynamics in the medium term, partly because GDP growth is likely to remain so weak.

Against this background, proposals for rollovers by the banks, whether or not deemed technically a default, are neither here nor there. Much more to the point would be debt buy-backs at levels close to current market prices, as discussed in last week’s statement on Greece of the Institute for International Finance, which brings together the biggest international banks. That would crystallise losses. So be it. Let reality be recognised. As the Financial Times has also argued this week, the case for offering a menu of options with partial guarantees, similar to those under the 1989 Brady plan for Latin American debt, is powerful.

The question is whether such voluntary debt reductions would be enough, particularly for Greece. The answer is No. Governments would also have to play a part, by either accepting losses on the face value of their loans or ensuring lower interest rates, as proposed by Jeff Sachs of Columbia University. These are just two ways of achieving a lower net present value of debt service.

The dangers of debt relief are great. But the chances of success with denial are close to zero. True, it is possible for an ever greater share of the debt to be assumed by governments, so bailing out private creditors. Yet, ultimately, the cost of the debt owed to official sources will have to be cut by lowering interest rates or reducing sums outstanding.

It is not a question of whether such adjustments will have to be made, but of when. The history of such crises strongly suggests that it should be done sooner rather than later. Only after debt is on a sustainable path is confidence likely to return. Allowing foolish lenders, incompetent regulators and sloppy policymakers to hide past mistakes is a bad excuse for endless delays.

The doubt, in truth, is not over whether relief on the present value of the debt service is required. The real questions are elsewhere. One is over how to manage a co-operative debt restructuring. The other is over competitiveness and the return to growth. Some point to the success of Latvia in managing its so-called internal devaluation. But its GDP is 23 per cent below its pre-crisis peak. That is a depression. Moreover, the more successful a country turns out to be in cutting its costs, the worse the debt burden becomes. Thus, debt restructuring is merely a necessary condition for an exit. It is unlikely, in all cases, to be enough. Some economies may just wither away.

Alternatively, politicians may pull their countries out of the eurozone regardless of short-run costs. It is far too early to assume this will be the outcome, though some already do. But if there is to be any chance of avoiding this outcome, realism is required. At some point, the present value of the cost of debt must be drastically lowered. This does not have to happen today. But it has to happen soon enough to give people hope. In its absence, failure is not just likely. It is close to a certainty.

Moment of truth for the eurozone, Financial Times, By Martin Wolf.

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Perplexidades de um neo-liberal não austeritário.

Sofrimento sem sentido

J. Bradford DeLong*

Por três vezes na minha vida, concluí que o meu entendimento do mundo estava substancialmente errado.

A primeira vez foi em 1994, na sequência da assinatura do Acordo de Comércio Livre da América do Norte (NAFTA), quando os fluxos financeiros para o México com vista à construção de fábricas que exportassem para o maior mercado consumidor do mundo se revelaram claramente inferiores aos fluxos de capitais com destino aos Estados Unidos da América em busca de um clima de investimento mais favorável. O resultado foi a crise do peso mexicano (que eu, enquanto Secretário Adjunto do Tesouro norte-americano, tive que ajudar a conter).

A segunda epifania surgiu no Outono/Inverno de 2008, quando se tornou claro que os grandes bancos não tinham controlo nem sobre a sua alavancagem nem sobre as suas carteiras de derivados, e que os bancos centrais de todo o mundo não tinham nem capacidade nem vontade de sustentar a procura agregada em face de uma crise financeira de grandes proporções.

O terceiro momento é agora. Enfrentamos actualmente uma contracção nominal da procura de 8% relativamente à tendência pré-recessão, não existem quaisquer sinais de pressões inflacionárias e as taxas de desemprego na região do Atlântico Norte excedem em pelo menos três pontos percentuais todas as estimativas credíveis do que possa ser uma taxa de desemprego sustentável. Ainda assim, e apesar da falta de atenção ao crescimento económico e ao desemprego implicarem normalmente derrotas nas eleições seguintes, os líderes políticos da Europa e dos Estados Unidos clamam pela adopção de políticas que reduzem, no curto prazo, os níveis de actividade económica e de emprego.

Estará a escapar-me aqui alguma coisa?

Julgava eu que as questões fundamentais da macroeconomia se encontravam resolvidas por volta de 1829. Por essa altura, já nem o próprio Jean-Baptiste Say acreditava na Lei de Say dos Ciclos Económicos. Say sabia muito bem que as situações de pânico financeiro e de excesso de procura por activos financeiros poderiam dar origem, no sector real da economia, a uma procura insuficiente para manter os níveis de produção e de emprego; e que embora a não aplicabilidade da Lei de Say no curto prazo pudesse ser temporária, isso teria, ainda assim, consequências altamente destrutivas.

Fazendo uso deste conhecimento, as perturbações do ciclo económico deverão ser corrigidas através de uma, ou mais, das três formas seguintes:

1. Primeiro que tudo, não deixar acontecer. Evitar o que quer que seja que possa dar origem a uma situação de escassez de activos financeiros ou de excesso de procura por esses mesmos activos – quer se trate do esvair de fluxos financeiros para o exterior no contexto do padrão-ouro; de um colapso da riqueza de longo prazo, tal como sucedeu aquando do rebentamento da bolha das empresas tecnológicas; ou de uma movimentação em massa em direcção a activos financeiros mais seguros, como em 2007/2008.

2. Se não for possível evitar o problema, então o governo deverá intervir e aumentar os níveis de consumo público de bens e serviços, de modo a manter o emprego nos seus níveis normais e a compensar a contracção da despesa privada.

3. Se não for possível evitar o problema, então o governo deverá criar e disponibilizar os activos financeiros que o sector privado quer deter, por forma a relançar a procura privada pelos bens e serviços produzidos em consequência da capacidade instalada.

Há um sem-número de subtilezas relativamente à adopção de cada uma destas opções políticas por parte dos governos. A tentativa de implementação de uma delas pode comprometer, ou interferir, com as tentativas de prossecução das restantes. Para além disso, no caso dos agentes económicos incorporarem a expectativa de tendências inflaccionárias nos seus cálculos e acções, pode suceder que nenhuma destas três curas se mostre eficaz. Porém, não é essa a situação em que nos encontramos.

Da mesma forma, se o grau de confiança na capacidade de um governo fazer face aos seus compromissos financeiros sofrer um abalo, a intervenção de um financiador externo de último recurso pode ser essencial para assegurar a eficácia tanto da primeira quanto da segunda cura. No entanto, actualmente também não é esse o caso entre as principais economias do Atlântico Norte.

E no entanto, de alguma forma, todas estas três curas deixaram de estar em cima da mesa. Não se vislumbra como provável a implementação de reformas em Wall Street e Canary Wharf que visem reduzir a probabilidade e gravidade de um qualquer pânico financeiro futuro, tal como não são prováveis quaisquer intervenções governamentais com vista a regular os fluxos de activos financeiros de elevado risco no interior do sistema bancário. Também não existe qualquer pressão política no sentido de alargar, ou mesmo prolongar, as anémicas medidas de estímulo que foram adoptadas.

Entretanto, o Banco Central Europeu está activamente à procura de formas de reduzir a sua oferta de activos financeiros ao sector privado e a Reserva Federal dos Estados Unidos encontra-se sob pressão para fazer exactamente o mesmo. Em ambos os casos, o argumento é que a adopção de políticas expansionistas adicionais poderá despoletar processos inflaccionistas.

Contudo, quando observamos a evolução dos índices de preços ou a forma como os mercados financeiros têm estado a reagir às estimativas e previsões anunciadas, não é possível observar quaisquer sinais de inflação. Por outro lado, se atentarmos na evolução das taxas de juro praticadas nos mercados de dívida pública das principais economias desta região, também não encontramos quaisquer indícios de risco de emergência de uma crise da dívida soberana entre estas economias.

Ainda assim, quando escutamos os discursos dos decisores políticos de ambos os lados do Atlântico, aquilo que se ouve é Presidentes e Primeiros-Ministros a dizer coisas como: “Assim como as famílias e as empresas tiveram que ser cautelosas a gastar, também o Governo tem agora que apertar o cinto”.

E é aqui que atingimos o limite dos meus horizontes mentais enquanto neoliberal, tecnocrata e economista mainstream e neoclássico. Neste momento, a economia global encontra-se no meio de uma convulsão de grandes proporções caracterizada pela insuficiência da procura e pelo elevado desemprego. Nós conhecemos as curas – e, contudo, parecemos determinados a infligir mais sofrimento ao paciente.

*Artigo de J. Bradford DeLong, ex-Secretário Adjunto do Tesouro norte-americano, é Professor de Economia em Berkeley na Universidade da Califórnia e Investigador Associado no National Bureau for Economic Research (EUA), publicado por http://www.bepress.com/ev/ em Março de 2011. Original aqui.

**Tradução de Sandra Paiva, Paulo Coimbra e Alexandre Abreu.

***Também publicado em Portugal Uncut.

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Managing a fragile Eurozone

Why does the Spanish government pay significantly more to borrow than the UK government – despite having a smaller deficit and lower overall debt? This column argues that the reason lies in the Eurozone’s fragility. Its members lose their ability to issue debt in a currency over which they have full control. The column discusses ways to deal with this weakness.

A monetary union is more than just a single currency and a single central bank. Countries that join a monetary union lose more than one instrument of economic policy. They lose their capacity to issue debt in a currency over which they have full control.

This separation of decisions – debt issuance on the one hand and monetary control on the other – creates a critical vulnerability; a loss of market confidence can unleash a self-fulfilling spiral that drives the country into default (see Kopf 2011). The economic logic of this is straightforward.

Suppose that investors begin to fear a default by, say, Spain. They sell Spanish government bonds and this raises the interest rate. If this goes far enough, the Spanish government will experience a liquidity crisis, i.e. it cannot obtain funds to roll over its debt at reasonable interest rates.¹ The Spanish government cannot force the Bank of Spain to buy government debt and although the ECB could provide all the liquidity in the world, the Spanish government does not control that institution. This can be self-fulfilling since if investors think that the Spanish government might reach this end point, they’ll sell Spanish bonds in a way that turns their fears into a reality.

It doesn’t work like this for countries capable of issuing debt in their own currency. To see this, re-run the Spanish example for the UK. If investors began to fear that the UK government might default on its debt, they would sell their UK government bonds and this would drive up the interest rate.

After selling these bonds, these investors would have pounds that most probably they would want to get rid of by selling them in the foreign-exchange market. The price of the pound would drop until somebody else would be willing to buy these pounds. The effect of this mechanism is that the pounds would remain bottled up in the UK money market to be invested in UK assets.

Put differently, the UK money stock would remain unchanged. Part of that stock of money would probably be re-invested in UK government securities. But even if that were not the case so that the UK government cannot find the funds to roll over its debt at reasonable interest rates, it would certainly force the Bank of England to buy up the government securities. Thus the UK government is ensured that the liquidity is around to fund its debt. This means that investors cannot precipitate a liquidity crisis in the UK that could force the UK government into default. There is a superior force of last resort, the Bank of England.

This different mechanism explains why the Spanish government now pays 200 basis points more on its ten-year bonds than the UK government despite the fact that its debt and deficit are significantly lower than the UK ones. This contrast is shown vividly in Figures 1 and 2.

Figure 1. Gross government debt (% of GDP) – Spain and UK

Source: AMECO

Figure 2. 10-year government bond rates Spain and UK

Source: Datastream

Because of the liquidity flows triggered by changing market sentiments, member countries of a monetary union become vulnerable to these market sentiments. These can lead to “sudden stops” in the funding of the government debt (Calvo 1988), setting in motion a devilish interaction between liquidity and solvency crises. For the liquidity crisis raises the interest rate which in turn leads to a solvency crisis. This problem is not unique for members of a monetary union. It has been found to be very important in emerging economies that cannot issue debt in their own currencies. (See Eichengreen, et al. 2005 who have analysed these problems in great detail).

There are important further implications of the increased vulnerability of member-countries of a monetary union. (In De Grauwe 2011 these implications are developed in greater detail; see also Wolf 2011). One of these is that members of a monetary union loose much of their capacity to apply counter-cyclical budgetary policies. When during a recession the budget deficits increase, this risks creating a loss of confidence of investors in the capacity of the sovereign to service the debt. This has the effect of raising the interest rate, making the recession worse, and leading to even higher budget deficits. As a result, countries in a monetary union can be forced into a bad equilibrium, characterised by deflation, high interest rates, high budget deficits and a banking crisis (see De Grauwe 2011 for a more formal analysis).

These systemic features of a monetary union have not sufficiently been taken into account in the new design of the economic governance of the Eurozone. Too much of this new design has been influenced by the notion (based on moral hazard thinking) that when a country experiences budget deficits and increasing debts, it should be punished by high interest rates and tough austerity programmes. This approach is usually not helpful in restoring budgetary balance.

In addition, a number of features of the design of financial assistance in the Eurozone as embodied in the European Stability Mechanism will have the effect of making countries even more sensitive to shifting market sentiments. In particular, the “collective action clauses” which will be imposed on the future issue of government debt in the Eurozone, will increase the nervousness of financial markets. With each recession government bondholders, fearing haircuts, will “run for cover”, i.e. selling government bonds, thereby making a default crisis more likely. All this is likely to increase the risk that countries in the Eurozone lose their capacity to let the automatic stabilisers in the budget play their necessary role of stabilising the economy.

A monetary union creates collective problems. When one government faces a debt crisis this is likely to lead to major financial repercussions in other member countries (see Arezki, et al. 2011 for evidence). This is so because a monetary union leads to intense financial integration. The externalities inherent in a monetary union lead to the need for collective action, in the form of a European Monetary Fund (Gros and Mayer 2010). This idea has been implemented when the European Financial Stability Facility was instituted (which will obtain a permanent character in 2013 when it is transformed into the European Stability Mechanism). Surely, when providing mutual financial assistance, it is important to create the right incentives for governments so as to avoid moral hazard. Discipline by the threat of punishment is part of such an incentive scheme. However, too much importance has been given to punishment and not enough to assistance in the new design of financial assistance in the Eurozone.

This excessive emphasis on punishment is also responsible for a refusal to introduce new institutions that will protect member countries from the vagaries of financial markets that can trap countries into a debt crisis and a bad equilibrium. One such an institution is the collective issue of government bonds (for recent proposals see Delpla and von Weizsäcker 2010, De Grauwe and Moesen 2009 and Juncker and Tremonti 2010). Such a common bond issue makes it possible to solve the coordination failure that arises when markets in a self-fulfilling way guide countries to a bad equilibrium. It is equivalent to setting up a collective defence system against the vagaries of euphoria and fears that regularly grip financial markets, and have the effect of leading to centrifugal forces in a monetary union.

A monetary union can only function if there is a collective mechanism of mutual support and control. Such a collective mechanism exists in a political union. In the absence of a political union, the member countries of the Eurozone are condemned to fill in the necessary pieces of such a collective mechanism. The debt crisis has made it possible to fill in a few of these pieces. What has been achieved, however, is still far from sufficient to guarantee the survival of the Eurozone.

Paul De Grauwe
10 May 2011

References

Arezki, R, B Candelon, and A Sy (2011), “Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis”, IMF Working Paper, 11/69, March.
Calvo, Guillermo (1988), “Servicing the Public Debt: The Role of Expectations”, American Economic Review, 78(4):647-661
De Grauwe, P, and W Moesen (2009), “Gains for All: A Proposal for a Common Eurobond”, Intereconomics, May/June
De Grauwe, P, “The Governance of a Fragile Eurozone”,
Delpla, J, and J von Weizsäcker (2010), “The Blue Bond Proposal”, Bruegel Policy Brief, May.
Eichengreen, B, R Hausmann, U Panizza (2005), “The Pain of Original Sin”, in B Eichengreen, and R Hausmann, Other people’s money: Debt denomination and financial instability in emerging market economies, Chicago University Press.
Gros, D, and T Mayer (2010), “Towards a European Monetary Fund”, CEPS Policy Brief.
Juncker, J-C and G Tremonti (2010), “E-bonds would end the crisis”, The Financial Times, 5 December.
Kopf, Christian (2011), “Restoring financial stability in the euro area”, 15 March, CEPS Policy Briefs.
Wolf, M (2011), “Managing the Eurozone’s Fragility”, The Financial Times, 4 May.

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 1. Additionally, the investors who have acquired euros are likely to decide to invest these euros elsewhere, say in German government bonds. As a result, the euros leave the Spanish banking system. Thus the total amount of liquidity (money supply) in Spain shrinks.

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Comprometer o essencial em troca de desemprego e obediência

O recente agravamento da componente pública da dívida externa é em larga medida resultado do abrandamento da actividade económica, da consequente significativa diminuição da receita com impostos, do aumento da despesa com protecção social, de juros que se tornaram imorais e da socialização dos prejuízos no BPN. Em Portugal, o Estado pode e deve gastar melhor, mas não é a razão do impasse económico a que chegámos. A componente privada da dívida externa, recebendo muito menos interesse dos mesmos eternos comentadores que o sistema lhe oferece for free, é consideravelmente maior que a pública.

Como muitos previram, as medidas pró-cíclicas de austeridade afundaram a economia e aprofundaram a divergência europeia entre o centro e periferia. Mas o quadro, de qualquer modo, estava há muito criado. Moeda única concebida à imagem e segundo os interesses da economia mais forte num espaço económico altamente heterógeneo. Credo liberal segundo o qual uma moeda comum pode existir sem orçamento comum. Tudo isto com o aprofundamento da desregulação e privatização que hoje permite aos tais ‘mercados’ condicionar profundamente as decisões dos governos que elegemos.

Trichet e FMI dizem-nos que a solução é mais do mesmo.

Hoje soubemos que 47 personalidades, entre elas, três presidentes da República e vários distintos intelectuais, se colocaram no mesmo barco.

A pressão é enorme. Mas, como se sabe, nas coisas humanas, excepto para o fim da vida, há sempre alternativa.

Stiglitz opõem-se a este tipo de solução para a Irlanda.

Krugman diz que é má ideia para Portugal.

Munchau afirma que a Europa deve recusar globalmente esta solução: “(…) a presente negociação gira à volta de 4 pilares: gestão da crise actual; o Mecanismo de Estabilidade Europeu; um novo pacto de estabilidade que inclua supervisão orçamental; e coordenação de políticas económicas e sociais. As negociações acerca dos financiamento do Mecanismo de Estabilidade Europeu têm avançado bem, assim como as discussões acerca do pacto de estabilidade. O menos robusto dos quatro pilares é a coordenção política. A Chanceler Angela Merkel insiste num pacto de competitividade como troca pela prontidão Alemã para disponibilizar garantias de crédito. Mas como devem responder os outros países? A minha resposta é: rejeitem. Eu recomendaria aos estados membros da zona Euro que vetassem o pacto de competitividade ainda que isso coloque em causa o pacote global. Se a Alemanha não pode garantir o seu lado nesta troca, não é claro para mim por que é que alguém aceitaria uma perda de soberania – que é o que efectivamente implicaria a coordenação de políticas (…)”.

Em Portugal mais razões há para dizer não; a remuneração do trabalho não tem cessado de minguar (parcela de retribuição do trabalho em percentagem do rendimento nacional diminuiu 10% entre 1975 e 2009) e a desigualdade de rendimentos é inaceitável.

Ao contrário de anuir com a imposição de injustas medidas austeritárias, precisamos de reclamar liberdade. É necessário defender o acesso universal ao serviço nacional de saúde, o subsídio de desemprego, as pensões de reforma e demais direitos do trabalho, para poder dizer não à coerção de senhores e patrões. Caso contrário, prepara-te, isso de tu não teres classe social é engano; um lugar de caixa, trabalho à noite e fins de semana e 400 eurinhos por mês estão à tua espera. Se te portares bem.

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Say no to Germany’s competitiveness pact

It is time to stop pretending that we are about to see a “grand bargain” for the eurozone in March. Last week, the political developments in Germany shifted dramatically in the wrong direction. The Bundesbank, the parliament, the small business community and influential academics have all come out openly against an extension of the various support mechanisms. German society as a whole is in open revolt against the eurozone.

The single most important event was the decision by the three coalition parties in the Bundestag to reject, categorically, bond purchases by the European stability mechanism. The ESM will be the permanent anti-crisis institution from 2013. The Bundesbank came to a similar conclusion in its monthly report. On Thursday, 189 German economists wrote a letter to a newspaper denouncing the ESM, calling for immediate bankruptcy proceedings of insolvent eurozone states. It is no longer just the constitutional court that puts a break on the process.

In last week’s column, I tried to explain the origins of that sentiment. Today, I will focus on the consequences. The best outcome, in my view, would be a failure of the current crisis resolution strategy, followed by a complete rebooting. The worst would be a never-ending stand-off, followed by a financial cardiac arrest. The most likely outcome is a very small compromise of the kind that resolves nothing.

The current bargaining revolves around four pillars: current crisis management; the ESM; a new stability pact with budgetary surveillance; and co-ordination of social and economic policies. Negotiations on the ESM’s funding have been going well, as have discussions on the stability pact. But there is no agreement on bond purchases, and no progress at all on current crisis management.

The least sturdy of the four pillars is policy co-ordination. Chancellor Angela Merkel insists on a German-inspired competitiveness pact as a quid pro quo for Germany’s readiness to provide credit guarantees. But how should other countries respond?

My answer is: reject it. I would recommend eurozone member states to veto the competitiveness pact, even if that jeopardises the entire package. If Germany cannot deliver its side of this quid pro quo, it is not clear to me why anybody would accept a loss of sovereignty – which is effectively what policy co-ordination would imply. The only reason to accept such a loss of sovereignty would be the prize of an ever closer economic union. But that would have to include a common eurozone bond at one point. Through bond purchases the ESM would eventually mutate into a European debt agency, the financial counterpart of an economic union. But if the ESM has its wings clipped from the outset, this will never happen.

There is also the problem inherent in the purely inter-governmental system of policy co-ordination that France and Germany are offering. In such a system, the large countries impose their will on the small. Just witness the arrogance with which Ms Merkel and French president Nicolas Sarkozy presented their six-point competitiveness pact at the last European Council.

But would the financial markets not panic at a failure to agree a deal? Quite possibly. But nobody should fool themselves into thinking that the reaction to a fudged deal would be better. It might come a little later, but it would come. And then you are in a much worse position. Once you get a bad deal in March, there is no way you can crawl back to the Bundestag for a top-up loan in May.

The reason we are in this pickle is, ironically, the lack of market pressure. With their enthusiasm about a deal, the financial markets might have killed it. Eurozone countries only act when under immediate pressure. Germany, for example, has a massive problem in its state-owned banking sector, but apart from a reluctant restructuring of WestLB, this is currently no policy priority. The Bundesbank tells everyone that it is not happy about transparency in stress tests, and there is no law in place to force recapitalisations. The relatively calm market situation also explains why 189 economists find the time to write a long letter, criticising what they clearly consider to be the resolution of someone else’s crisis. I am afraid that without a force majeure event, there will be no crisis resolution. A good example is the Spanish recapitalisation of the savings banks. The Spanish government would never have had the courage to force this without the fear of being next in line for a speculative attack.

The EU’s crisis resolution strategy is to draw attention away from the underlying causes of the crisis: that you cannot have nationally controlled and undercapitalised banking systems in a monetary union with structural current account imbalances. The difficult job is to translate this technical statement into a language understood by politicians and their constituents, and to do so without lying. This is not a fiscal crisis. It is not a crisis of the south. It is a crisis of the private sector and of undercapitalised banks. It is as much a German crisis as it is a Spanish crisis. This acknowledgement must be the starting point of any effective resolution system. A veto in March is thus a necessary first step in crisis resolution.

Wolfgang Münchau, February 27 2011, FT

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Should financial markets dictate budgetary policies in the eurozone?

By Paul De Grauwe

The crisis that started in Greece culminated into a crisis of the eurozone as a whole. It may find a temporary resolution. But even then, it will leave an important imprint on macroeconomic management within the eurozone. In particular, the crisis has made clear that the financial markets are dictating and will continue to dictate the speed with which the eurozone governments are reducing their budget deficits and debt levels. In other words, not the governments but the financial markets will force exit strategies in the budgetary field.

The believers in market efficiency are cheering. The markets are going to discipline profligate governments, forcing them back into orthodoxy. The reluctant governments failing to follow the market’s order will be punished with higher risk premia on their bonds. In the end the market will force them to return to the stable of budgetary orthodoxy.

The view that financial markets are a reliable device forcing agents and institutions to be disciplined is popular again. This is surprising. After all, can’t we conclude from the recent past that, if anything, financial markets have failed dismally as a disciplinary device?

Before the subprime crisis, financial markets systematically underestimated risk, leading to excessively low risk premia which in turn gave wrong incentives to millions of investors who took on too much risk. Since the eruption of the crisis, risk premia have increased everywhere.

Are we so sure that the risk premia that the markets are now imposing are the right ones? If for years the markets could underestimate risk, can’t they also overestimate risk systematically afterwards? The answer is yes, of course.

It is even worse. The risk aversion that markets today exhibit vis-à-vis government debt creates a self-fulfilling dynamic that tends to increase the risk inherent in government debt. Let me elaborate on this.

First, it is important to keep in mind that the main source of the sudden increase in government debt in the eurozone (and elsewhere) is the preceding unsustainable explosion of private debt of households and even more so of financial institutions.

Since the eruption of the crisis, the private sector has been gripped by the need to improve its balance sheets by saving more and by deleveraging. Balance sheet improvement of the private sector, however, was made possible because governments made it possible. The fact that governments started saving less and took on more debt was the condition that allowed private sector agents to improve their balance sheets.

When financial markets today force governments of the eurozone (and elsewhere) to exit their strategies of budget deficits and debts, they cut the branch on which they are sitting. By forcing an early exit strategy, financial markets force private agents to intensify their attempts at reducing debt levels by saving more and by selling assets. This is likely to be self-defeating and to lead to a new recession. And as always, recessions lead to deteriorations of government budget deficits.

The vicious circle has come around. By forcing governments into early exit strategies, financial markets increase the risk that government budget deficits increase, raising the risk against which financial market participants wanted to protect themselves against.

There is a second self-fulfilling mechanism that will affect government budgetary policies in the eurozone. When investors start dumping, say, Spanish government bonds, they raise the interest rate on these bonds and force the Spanish government to reduce its budget deficit.

This is likely to produce a downturn in Spanish economic activity which in turn affects Spain’s trading partners. The latter see their exports to Spain decline, leading to a decline in their national production. Through this channel government budget deficits increase in the countries that trade a lot with Spain. Thus by selling Spanish government bonds investors also increase the riskiness of the government bonds in other countries of the eurozone. Investors start selling these bonds also.

The essence of the problem is that investors who sell government bonds of one country do not take into account the spillover effects these sales have on the riskiness of the government bonds of the other countries. This problem of risk contagion is high in the eurozone because member countries trade intensely with each other. Investors trying to avoid risk, create more risk elsewhere in the eurozone.

In addition, by forcing an early exit strategy on one member country of the eurozone, other countries that need not exit are also forced to do so. The probability of a new recession in the eurozone increases. There is only one way to solve this problem. This consists of the governments of the eurozone coordinating their budgetary policies better. Unfortunately, there is very little prospect for this to happen soon. As a result, financial markets, that are ill-suited to do so, will continue to dictate budgetary policies in the eurozone.

Paul De Grauwe is professor of economics at the Catholic University of Leuven and associate fellow at the Centre for European Policy Studies.

Related reading:

Greece: It’s not all tragedy Michael Burda, Vox
Spain’s woes and Germany’s export model come mean double dip Edward Harrison, Naked Capitalism
FT Alphaville
FT Money Supply

March 15, 2010 2:55pm in Crisis, Eurozone, Greece

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Fresh fears over European bank sector

By David Oakley, Capital Markets Correspondent

Published: June 29 2010 13:34

Fears rose over the health of the European banking system on Tuesday as interbank rates jumped to nine-month highs amid worries that the European Central Bank may be reducing emergency financial support to financial institutions too soon.

Key three-month euribor rates, which measure the cost at which banks are prepared to lend to each other, jumped to the highest level since September and the biggest one-day rise since April 28. Euribor rates rose to 0.761 per cent from 0.754 per cent.

Bankers warn that the ECB’s decision to offer banks loans for only three months instead of a year is raising concerns that many institutions will come under further pressure in the strained interbank markets.

Don Smith, economist at Icap, said: “There are major worries over the systemic risks for banks, with many struggling to access the private markets. The ECB is in effect weaning the banks off the artificial support system – and this is a concern.”

The ECB will on Wednesday offer unlimited loans to European banks for three months as it seeks to smooth funding for those banks that have to return one-year loans to the central bank on Thursday.

However, in spite of the vast amount of support the ECB is offering to the market, with more than €800bn in outstanding loans to eurozone banks, analysts say the fact the ECB is no longer offering loans for a year has worried some investors.

This is because the shorter-term loans create more dangers of so-called rollover risk. In other words, weaker banks relying on the ECB for lending as they struggle to access the private markets have less certainty over their financing than if they had the loans for a year.

via FT.com / Markets – Fresh fears over European bank sector.

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The Third Depression

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

By PAUL KRUGMAN

Published: June 27, 2010

Op-Ed Columnist – The Third Depression – NYTimes.com.

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