Tag Archives: Eurozone

EU Ideologues “Crowd Out” Sanity

By William K. Black

It is often the small things that best illustrate insanity.  On October 13, 2014, EU Economic and Monetary Affairs Commissioner Jyrki Katainen spoke to emphasize one message:

“[The EU’s leaders] ‘don’t want the [European Investment Bank] EIB crowding out private investment.’  He said the EIB should be used to leverage money from the private sector, ‘and play a part in big infrastructure projects,’ notably ones that have been delayed.”

It’s helpful to situate this smaller example of economic insanity within the broader context of the insanity of austerity inflicted by those same EU leaders.  The general insanity is that the EU politicians are the most economically illiterate and extreme member of the troika.  I just wrote a column explaining that they are bitterly attacking Mario Draghi, the head of the European Central Bank (ECB) for (in their warped interpretation) becoming apostate on the subject of austerity.  The IMF, at least many of its professional economists, left the one truth faith of the austerians long ago when it began publishing research showing that fiscal stimulus was a great success and even its leadership began to warn against austerity. 

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The EU Austerians Attack Each Other

By William K. Black

As things go from bad to worse in the eurozone the putative adults have begun to fight openly in front of the kids.  The putative adults, of course, have refused to act like adults for six years and instead have lived in a fantasy world in which austerity – bleeding the patient – is the optimal response to a recession.  As many of us have been warning for six years, this is a great way to create gratuitous recessions and even the Great Depression levels of unemployment in three nations of the periphery with 100 million citizens.

Italy has been forced by German demands for austerity into a third recession in six years, with France likely to experience the same fate.  Even Germany has stagnated and could fall into recession.  Instead of the four horsemen of the apocalypse, the three horses that make up a troika consist of the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC).  The troika combined to force the entire eurozone to inflict austerity in response to the Great Recession.

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Germany Demands Greater Austerity Because Three Recessions in Six Years are not Enough

By William K. Black

Things are going badly in the eurozone – as they have for six years due to Germany’s demand that “there is no alternative” (TINA) to austerity as the response to the Great Recession.  Austerity caused a gratuitous second Great Recession throughout the eurozone and threw nations with one-third of the eurozone’s total population into Great Depression levels of unemployment.  Austerity has now forced Italy into a third recession in six years and produced overall stagnation in the eurozone.  Germany, whose budget surplus has produced economic stagnation, has found a solution to the latest crisis caused by self-destructive austerity – greater austerity.  Better yet, as a Reuters column relates, Germany’s leaders are enraged that anyone would dare to question why it makes sense to reduce further already inadequate demand through austerity.

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EU Austerity as Frat House Hazing

By William K. Black

The European Union (EU) is stagnating because of austerity.  Austerity in response to the Great Recession has already, gratuitously, forced the eurozone into recession and roughly one-third of its population live in nations with Great Depression levels of unemployment.  Austerity has now thrown Italy into its third recession in six years and may well do so in France.  One might think that even the troika would respond to this track record of failure and anguish by deciding to stop smashing the eurozone’s economy with the hammer of austerity.

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The New York Times Admits that “Many Economists” Criticize EU Austerity

By William K. Black

Under the principle that one should bestow a special welcome on the tentative steps that the prodigal daughter takes to return to economic reality I write to praise Liz Alerman’s column entitled “France Produces a “No Austerity’ Budget, Defying E.U. Rules.”  The column contains a sentence that represents a breakthrough in the New York Times’ horrific (non) coverage of Eurozone austerity, its abject failure, its self-destructive nature, and its victims.

“But many economists believe that crimping spending during a downturn has impeded economic growth, which in turn has made it harder for those countries to reduce their deficits and debts.”

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Note to New York Times: EU Austerity is the Problem

By William K. Black

In the latest example of the New York Times’ reporters’ inability to read Paul Krugman, we have an article claiming that the “Growing Imbalance Between Germany and France Strains Their Relationship.”  The article begins with Merkel’s major myth accepted as if it were unquestionable reality.

“It was a clear illustration of the dysfunction of the French-German partnership, the axis that for decades kept Europe on a united and dynamic track.

In Berlin this month, Chancellor Angela Merkel, riding high after nine years in power, delivered a strident defense in Parliament of austerity, which she has been pushing on Europe ever since a debt crisis broke out in 2009.”

No, not true on multiple grounds.  First, the so-called “debt crisis” was a symptom rather than a cause.  The reader will note that the year 2008, when the Great Recession became terrifying, has somehow been removed from the narrative because it would expose the misapprehension in Merkel’s myth.  Prior to 2008, only Greece had debt levels given its abandonment of a sovereign currency that posed a material risk.  The EU nations had unusually low budgetary deficits leading into the Great Recession.  Indeed, that along with the extremely low budgetary deficits of the Clinton administration (the budget went into surplus near the end of his term) is likely one of the triggers for the Great Recession.

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It’s Long Past Time for Krugman to Name and Shame NYT’s Eurozone Reportage

By William K. Black

Monday, July 7, 2014 provided another example of Paul Krugman explaining why austerity was an insane response to the Great Recession and the New York Times authoring another of its endless articles that assumes that austerity is essential to a eurozone recovery. I have no problem with the NYT reporters providing their rationale for why they concluded that Krugman was wrong and that austerity is the proper response to a recession. My problems are with the NYT reporters ignoring Krugman’s views – views shared by the great bulk of economists – and with their failure to question whether austerity is the proper response to a recession.

Recessions occur when demand becomes seriously inadequate and industries fire workers and decrease production and investment. Austerity further reduces already inadequate demand by reducing public sector demand. Austerity is akin to bleeding the patient (the economy) to make him well. It would, therefore, be exceptionally strange if austerity were to be the optimal response to the Great Recession. We have a great deal of real world experience in dealing with recessions that confirms that austerity is self-destructive in such circumstances.

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Where Do the Troika, WSJ & NYT Think Deflation Comes From?

By William K. Black

If the troika (the European Commission, ECB, and IMF) taught sex education students would believe that storks brought children, that sex had nothing to do with pregnancy, that confident women never got pregnant, and that women should be forced to lose weight when they became pregnant.  The Wall Street Journal and the New York Times would repeat these myths as science. The NYT would employ one of the world’s top gynecologists (Dr. Krugman).  Dr. Krugman would debunk these myths nearly every week – and neither the troika nor the reporters for the NYT and the WSJ would ever listen to him.

The last several days have led to a flurry of WSJ and NYT stories about “deflation.”  I just posted critiques of some of the earlier stories here and here.

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Deflation Dementia

By William K. Black

There must be some café in Brussels where all the most inept U.S. financial journalists meet with the troika-trolls to get their take on eurozone deflation.  Regular readers know that I am a strong critic of much of what passes for financial journalism, but there are special qualities to the U.S. coverage of the topic of eurozone deflation.  It is so homogenous and its logic is so internally inconsistent that it is breathtaking that so many journalists can repeat the same demented “logic” no matter how many times we explain that it is facially nonsensical.

The latest example of this genre is an AP story that has already been reproduced by elite media without even a scintilla of scrutiny.  Here’s how the AP begins its tale.

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Dear Dr. Krugman: Please Let Me Explain

By Joe Firestone

Paul Krugman can’t explain why the deficit issue has suddenly dropped off the agenda. He says:

. . . quite suddenly the whole thing has dropped off the agenda.

You could say that this reflects the dwindling of the deficit — but that’s old news; anyone doing the math saw this coming quite a while ago. Or you could mention the failure of the often-predicted financial crisis to arrive — but after so many years of being wrong, why should a few months more have caused the deficit scolds to disappear in a puff of smoke?

Why indeed are they so quiet? Could it be because the deficit hawks have succeeded in getting the short-term result they want, which is a likely deficit too small to sustain the private savings and import desires of most Americans, and also because the political climate is such right now that they cannot make progress on their longer term entitlement-cutting program until after the coming elections have resolved the issue of whether there will be strong resistance to such a campaign if they renew it? Let’s look at the budget outlook first.

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