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I really do not think the "per capita distribution" really works. Its completely different from expanding the powers of the European Parliament and giving it spending and taxing powers. Here's the math. Greece 2010 GDP was €230 billion and the EA17 GDP around €9,200 billion. So a $1 trillion "drop" which is distributed "per capita" implies €25 billion worth of aid to Greece. Well, they have already received more than that!More math. According to the recent IMF's WEO (Table A11), Greece's current account deficit reached 14.7% of GDP in 2008. Which is around €34 billion! implying that "per capita distribution" of €25 billion is hardly sufficient. Any excess demand created by such mechanisms will lead to an increase in the current account deficit to the same as in 2008 and keeps exploding forever (assuming someone puts such a policy in place!) requiring more and more bailouts forever.A supranational fiscal authority (i.e., the European Parliament with higher powers to spend and tax) works in a completely different way, just like the US Federal Government. Intuitively, at zeroth order, the US government seems to spend "per capita" on States but actual data suggest something very different – as an article from The Economist – "America's fiscal union" suggests. On the question of breaking up, I do not know how it will operationally happen. It requires at least a few in power to decide and boy, if it leaks, capital flight happens in seconds, thanks to the excellent payment system called TARGET2. Also, especially for the case of Ireland, where a lot of multinationals have setup financial SPEs, it necessarily has to be done unilaterally. The gross liability of Ireland was €2.74 trillion at the end of Q1 2011 (number taken from its International Investment Position publication) and taking a unilateral step is beyond impossible. This will lead to immediate retaliation and Ireland would be shut off from the rest of world for a long time.
Good discussion, although including eyes glazing over at the ECB distribution proposal.The ECB distribution proposal essentially replaces heterogeneous EZ country bond interest costs with the homogeneous and cheaper cost of ECB interest on reserves. The latter shows up as a (marginal) net interest margin cost for the ECB, and a potential drag on its capital position, or at least on its normal net interest margin levels. The EZ treasuries would probably be required to top up ECB capital over time. But that’s economically preferable to the alternative of making higher cost interest payments on bonds.Does the proposal include any allowance for differentiating net interest costs among EZ treasuries, based on some formula adjustment to the unified cost of interest on ECB reserves – or is the idea that all countries would end up effectively paying the same interest rate for this sort of ECB funding?
"This will lead to immediate retaliation and Ireland would be shut off from the rest of world for a long time."Another 'burn in hell' statement refuted by the evidence of Argentina and Iceland.No country is cut off from the world for a long time, because there is too much profit to be made from a disaster.
Yes, cheap funding is available and instead of "crediting bank accounts", the ECB can purchase government securities in the markets – which it has been doing now, selectively. However, such cheap funding comes with terms and conditions attached because finally Greece or other weaker nations are debtors. The reason the ECB won't purchase too much is that it believes that unless nations take step to become more competitive, the situation can keep worsening. Cheap credit will always come with harsh terms and conditions especially given that Euro Zone nations had access to cheap credit before the crisis and the creditors now believe that lending won't be so easy. The plan of "crediting bank accounts" misses the point that imbalances within the Euro Zone will keep building without there being any mechanism for it to reverse. The ECB is not a fiscal authority – it is a central bank. A separate institution with high powers is needed which can monitor the situation and govern. For example, if the ECB were to peg the yields of government, there is nothing preventing the governments to take advantage of this. Low interest rate necessarily comes with conditions.
Ram,"per capita" is based on population. So if pop of Germany is 80M and Greece is 11M, then Greece would get Euro of approx 1/7th of Germany. GDP of Germany is 2.5T GDP Greece 280B so in economic GDP terms Greece is a bit above 1/10th of germany. So you see the mismatch due to germany in the north having the industry that results in more gdp per capita, just as in the past, before air conditoning, the northern US possessed more manufacturing and the south was very agricultural based, but we were/are in fiscal union.So if Greece received 1/7th of the Euro drop that Germany gets, but has been left with 1/10th of the GDP of Germany, you can see how this drop will help adjust (but yes not completely correct) the current economic screw deal that is being forced upon Greece…. for instance I think they could get their bonds sold at much lower interest rates at least and maybe more left over for public investment.The drop helps to adjust for naturally occurring environmental variation in the rates of production (as measured) in different geographic regions of the west … not perfect but it should help imo. Resp,
Matt,Yes, I know – since I didn't have the numbers, I assumed a population distribution as per 2010 GDP. Do you have the actual numbers if you know what the population distribution is ? How much is the bailout amount then … shouldn't be too far away. The emphasis was that Greece has already received a lot of funds. Even with any assumption of population distribution, Greece's needs will keep growing in time – and the Troika is precisely making sure that it doesn't. Unfortunately it comes with a social loss. Any "distribution" plan will lead to a continuous increase in current account deficits as the 2008 data shows (14.7%!)
Matt,Also let me say this in the following way:It helps the plan minorly, if the debtor nations have a lower population density than the creditor nations. What if it is the opposite ?The distribution of population has nothing directly to do with competitiveness and output. One can have two nations with the same population and different productively, output etc.
@ RamananOne or two things. Population dispersions can be found here:http://en.wikipedia.org/wiki/EurozoneGreece makes up around 3.4% of total population. So it would get around €34bn a year.Ireland makes up about 1.36% so they would get around €13.6bn a year.Given that Greece's debt is around €240bn and Ireland's is around €115bn, we're talking just about 10% of government debt being paid down a year.Is this small fish? Depends on the way you look at it. If this is being paid every year then markets are 100% assured that they will meet their debt repayments as they fall due. And that, to be realistic, is all that really matters.With this guarantee in place I think these countries could run reasonably high budget deficits for a number of years.If you were really unhappy with that, then double the payment and they'll be getting 20% of their government debt. That seems like a lot to me though.
Sorry, 10% is way too rough. It's actually about 11%-15%.And then, if doubled to a €2trn payment it would be around 22%-30%.Again, I think the former is easily enough to reassure markets…
Im not great fan of this "per capita" idea because it takes lot more money to employ peoples in rich countries. So they need more than the poorer ones to tackle the unemployment.
Philip,Thanks for the info. "Is this small fish? Depends on the way you look at it. If this is being paid every year then markets are 100% assured that they will meet their debt repayments as they fall due. And that, to be realistic, is all that really matters."Yes small fish because the way it is going currently, Greece's public debt/gdp keeps rising forever mainly because of the current account deficit and through sectoral balances, the budget deficit. The plan just postpones the day of the reckoning. That brings me the question – what exactly is the plan ? With no apologies for sounding like a neoliberal (am not) throwing money at the problem doesn't work. Another important thing. An astrophysicist and/or a cosmologist may merge all planets as one but for studying something practical, it doesn't help proxying the central bank for a central government. Firstly, there needs to be an organization which has fiscal powers. It is simply a bad idea to ask the ECB to go around crediting bank accounts. Who decides how much is needed this year, next year ?And government's decisions are never on a "per capita" basis. You cannot algorithmize government's function like this. A central government tries to help weaker regions catch up to others' competitiveness. Such decisions are made by leaders every day and telling the Euro Zone leaders to simply credit bank accounts doesn't help!When even mainstream economists have understood that a fiscal authority is needed, then why bring in a new plan ? Neither is the crediting bank accounts plan seen as a bridge – it is contingent on the absolute certainty that a fiscal union is formed. If there is certainty, why is a "drop" needed ? If there is no certainty, it just makes things worse – Greece/Ireland just become bigger debtors.
Sorry "Another important thing. An astrophysicist and/or a cosmologist may merge all planets as one but for studying something practical, it doesn't help proxying the central bank for a central government"An astrophysicist and/or a cosmologist may merge all planets as one but for studying something practical, it doesn't help calling Mars as Earth and similarly giving functions of the government to the central bank.
JKHI know you've raised the issue of "negative equity" as an entry on the ECB's balance sheet, but I don't think that's a problem. You could simply pay less interest on reserves or ask the NCBs to take the transferred profits and contribute more to the ECB's capital base. All an accounting gimmick, but the ECB guys seem to care about this.
"Yes small fish because the way it is going currently, Greece's public debt/gdp keeps rising forever mainly because of the current account deficit and through sectoral balances, the budget deficit.The plan just postpones the day of the reckoning."Why does it matter if their debt/GDP keeps rising if they're getting transfers?What day of reckoning are you talking about? Default? That doesn't happen if they keep getting transfers every year from the ECB.I think you're looking at this through one lens and this lens obscures the accounting realities involved.Here's what would happen in reality if a €1trn annual payment was made:(1) Markets would be reassured that Greece could make repayments as they fall due. Yields would thus fall and the default crisis would evaporate.(2) Greece is currently running government deficits or around 10% a year. Now, they'd be getting transfers of 15% a year, so they could ramp up spending to maybe 13% for the first few years to bring down unemployment and start collecting taxes better and still make repayments.(3) External deficits don't matter in this circumstance provided the transfers keep coming and their trade partners continue accepting €s.There is no 'end game' here. To be honest, I think you're just fetishising the external deficit. And to be truly frank, it does make you sound like a neo-liberal.
Marshall,I agree it’s not (or at least shouldn’t be) a problem. I’d just prefer to see proposals like this specify the accounting that goes with them. Put something on the table in that regard that people who (should) know accounting can respond to. If the ECB is retained as an institution, then equity capital accounting with distributional implications is still required by logic. It’s not as if some magical, mathematically continuous function is created as an implicit by-product of the proposal, where imbalances in interest revenues and expenses are automatically eliminated as they occur. On the other hand, if a different proposal includes changing the nature of the central bank as an institution (implied in logic by “no bonds”, for example), that should be handled in a different way. But any proposal that changes asset-liability architecture or institutional architecture has accounting implications that should be made transparent. The other bright fellow in your interview was caught in the high beam headlights of dramatic accounting change, without really knowing the nature of what he was dealing with.The entire financial system consists of institutions and the accounting for them, with a mix of computer entries and pieces of paper. The notion of “gimmick” is context dependent in that sense. Accounting can always be interpreted for the finance it implies. And finance can always be interpreted for the economics it implies. Proposals to change financial system operations or architecture should follow through with corresponding implications for the accounting. As far as MMT is concerned, I would have thought that this approach should be consistent with MMT’s primal focus on accounting in the existing monetary system as the starting point for an explanation of how it all works in truth with regards to the generally (mainstream) misinterpreted issues of solvency, inflation, etc.
Philip,"I think you're looking at this through one lens and this lens obscures the accounting realities involved."Well, that kind of argument may work with others, not me :)"What day of reckoning are you talking about? Default? That doesn't happen if they keep getting transfers every year from the ECB."Yes, but its fixed. If it is unlimited, it gives nations the incentive of having their spending out of control. "(3) External deficits don't matter in this circumstance provided the transfers keep coming and their trade partners continue accepting €s."I understand in addition to receiving the drops from the ECB, national governments also issue debt securities in the markets. Your plan seems to suggest that in addition to receiving drops from the ECB, there is also some kind of explicit guarantee from someone (ECB) I guess who would promise that the Greece bonds won't default (?)A nation such as the United States has rules about State government finances should be run – for example current expenditures need to be balanced etc. Unfortunately in the plan, there is nothing like this it seems. For example what happens if Greece's public debt never comes to 60% ? Then I see a plan to raise it to 2T! There should be a logic around these issues. It is true politicians make decisions without really understanding their implications, but even if they did, there needs to be an institution which takes such decisions. The decisions are how much government expenditures are in each region, what the tax rates are in each region, what the incomes policy is, and other methods to attempt to increase competitiveness of regions which are structurally weak. The US government, or any government such as the UK govt, simply doesn't distribute funds on a per capita basis to various regions! Here in the plan .. its the central bank doing that!!One person in the discussion panel in the video asked … simply pressing the buttons will solve all the problems ?… He is quite right!Do not attempt to separate Macroeconomics from Political Economy .. any attempt to do so is doomed to be a failure.
"Yes, but its fixed. If it is unlimited, it gives nations the incentive of having their spending out of control."No, it's neither unlimited nor fixed. The proposal is quite clear:(1) The transfers are maintained until a debt/GDP reach 60% at which point they accord with the SGP.(2) The transfers will be rescinded should the recipient countries spend beyond a level deemed acceptable by the central authority."Your plan seems to suggest that in addition to receiving drops from the ECB, there is also some kind of explicit guarantee from someone (ECB) I guess who would promise that the Greece bonds won't default (?)"Again, the fact that transfers are promised until debt/GDP falls to 60% IS the guarantee that a default will not take place.Add to this the fact that the transfers will be greater than the present budget deficits and investors can be sure that debt is paid off as it matures. I fail to see what is so complicated about this."Unfortunately in the plan, there is nothing like this it seems. For example what happens if Greece's public debt never comes to 60%?"Ramp up the transfers? I doubt it would be necessary. But what the hell. Once the institutional mechanisms are in place and political will is channeled in the right direction, transfers can be increased as much as the ECB deems fit."Then I see a plan to raise it to 2T! There should be a logic around these issues."There is a logic: prevent default; get economic growth ticking over; bring down debt/GDP and yields; ensure that governments do not spend themselves into inflation. Plenty of logic.The rest of your points I either don't understand or consider too vague to be of consequence.
"The rest of your points I either don't understand or consider too vague to be of consequence."Hmm Hmm…!"Again, the fact that transfers are promised until debt/GDP falls to 60% IS the guarantee that a default will not take place."Well, that depends on there being a mechanism by which 60% is reached which of course is not guaranteed. If anything, it keeps rising simply due to the logic of sectoral balances. "There is a logic: prevent default; get economic growth ticking over; bring down debt/GDP and yields; ensure that governments do not spend themselves into inflation. Plenty of logic."Well, the IMF tried that but couldn't. The point is that with the Greece's external sector simply running into unsustainable territory, there needs to be policies such as an incomes policy which prevents this from happening. Finally your plan is simply amounts to deflating demand in nations such as Greece isn't it ? Because keeping crediting bank accounts won't have the effect of Greece's public debt coming back to 60% of GDP. Have some self-consistency."(2) The transfers will be rescinded should the recipient countries spend beyond a level deemed acceptable by the central authority."And where did that come from ? Links ?Its not in here for example: http://moslereconomics.com/2010/01/19/proposal-for-the-eurozone/At any rate, please point to one place where the proposal is kept, rather than adding a few things one by one. "Ramp up the transfers? I doubt it would be necessary. But what the hell. Once the institutional mechanisms are in place and political will is channeled in the right direction, transfers can be increased as much as the ECB deems fit."Well, in that case, your plan is not needed. A central government will do the trick.
"Well, that depends on there being a mechanism by which 60% is reached which of course is not guaranteed. If anything, it keeps rising simply due to the logic of sectoral balances."I already said: either the 15% — that is 5% over current Greek deficit — lowers the debt/GDP quickly enough so that the markets calm or they ratchet up the program (which, once again, I don't think is necessary)."The point is that with the Greece's external sector simply running into unsustainable territory, there needs to be policies such as an incomes policy which prevents this from happening."The phrase 'unsustainable territory' means very little to me in that context. The problem is a Greek debt default. Not the external sector. If the external deficit insists and by proxy continues to weigh on the government budget this needs to be counteracted by the transfer payment. Once again — and hopefully for the last time — the figures seem to indicate that the €1trn plan will be enough to offset the current balances in Greece."Finally your plan is simply amounts to deflating demand in nations such as Greece isn't it ?"Absolutely not. As I said in the last comment, there would be some leeway for Greece to increase it's government budget deficit to increase demand and get growth going. (I'm thinking 3%-4% of deficit spending space which can then be increased y-on-y until aggregate demand is sufficient)."Because keeping crediting bank accounts won't have the effect of Greece's public debt coming back to 60% of GDP."Of course it will. If Greek debt outstanding is €240bn and it's running a deficit of 10% GDP and I credit the bank account to the tune of 15% GDP, the remaining 5% will be used to pay down debt which will pave the way to reducing the debt.Alternatively, we could use 1% GDP of the transfers to pay off maturing debt and the other 4% to stimulate aggregate demand in the hope that the increased overall GDP would bring down the debt.If a mix of these policies doesn't work — increase the transfers."At any rate, please point to one place where the proposal is kept, rather than adding a few things one by one."I assumed you'd read the plan you are criticising…"Well, in that case, your plan is not needed. A central government will do the trick."Whatever. If the Europeans want a central government rather than a transfer payment from the ECB that's fine with me. I personally doubt the politics would allow it though.
Philip,Once again – single place where the proposal is written down ?Here's the hidden danger in your plan. Like all mainstream approach, the plan misses the fact that in the sectoral balances identity NAFA = DEF + CAB, DEF and CAB have a dynamics of it own. Your plan assumes that the Greece public debt comes back to 60% of GDP and that the ECB can keep crediting bank accounts as long as it can. Unfortunately, it doesn't. There is a path in the future where the public debt/gdp keeps rising forever and it is _the_ path Greece is headed to now. If you promise the markets that Greece's public debt comes back to 60% and that the ECB will keep making drops, then it doesn't help too much. Maybe the market reacts positively, as it did when the EFSF was announced one weekend. However, it was later found that the Greece public debt is still rising. The plan then moved to deflating demand in Greece to get this under control. It didn't work. So they are now moving into making plans of defaulting. Plus plans to put wages under control etc. Okay, a sadistic approach but just stating my way of looking at it. The hidden danger of your plan is that the public debt/gdp NEVER comes back to 60%. If the market reacts positively, it just postpones the day of reckoning – what if it never comes back to 60% ? The markets are already doubting. A growing demand in an affected nation such as Greece will just keep increasing its current account deficit because imports increase as a result of the demand created. This will require you to have a bigger bond drop than 1T – not sure you realize that or not. The Euro Zone problems are essentially external. Just check the current account deficits of all EA17 nations and the Net International Investment Position. It is crystal clear why the nations in problem are in problem. "Of course it will. If Greek debt outstanding is €240bn and it's running a deficit of 10% GDP and I credit the bank account to the tune of 15% GDP, the remaining 5% will be used to pay down debt which will pave the way to reducing the debt."Well again, since it is done on a per capita basis, if Greece is receiving 15% of its GDP, then other nations are receiving huge amounts in EURs and spending is simply out of control!"I personally doubt the politics would allow it though."True with any plan. So far this is just for Greece. There are other "peripheral" nations which are running into trouble as well. To me it looks like confusing a supranational fiscal authority with a central bank.A central government is constantly monitoring the situation and deciding when to spend, how to tax etc. A government of a nation has its expenditure in a region less tax collected offsetting the current account balance of the region – at least it attempts to. But it also is running various other policies, which maybe region specific. For this very reason, a central government is needed. To confuse this function of the government with that of a central bank and asking others to also confuse them is beyond belief for me. For example, your plan has nothing absolutely to say about wages, competitiveness etc. It needs a government to manage these things. Your plan just amounts to giving the role of the government to the ECB, but algorithmzing the former's role and there is no talk of other functions a central government does. Okay its easy to credit bank accounts – so what ?
I'm bored with this now. The figures are clear.Greek trade deficit is currently about 10% of GDP. Greek government deficit is about 10% of GDP. Government deficit clearly supports trade deficit.If plan is initiated Greece will receive 15% of GDP on a yearly basis. 10% supports current government deficits — which are already supporting the trade deficits. The additional 5% either goes to increasing GDP or paying down debt directly. Either way debt/GDP will shrink.So, what about 'leakages' to foreign sector. I.e. what if income accruing to the private sector via the transfers leaks to the external sector?If we look at the data Greece's current account maxed out in 2009 around 14.5%. So, what if we increase the Greek government deficit to 14% (with 1% of GDP going from transfer payments to direct debt repayment to calm markets) and ALL of this is leaked to the external sector?That would be a problem — although it seems highly unlikely. But let's say it did happen.In that case the budget would still be stable. The government deficit would not grow the outstanding stock of government debt because it would be covered by the transfer payments. Meanwhile, approximately 1% would be going to paying off debt as it matured.So, we don't get a default. But we do get debt being paid back very slowly (albeit with a higher standard of living and lower unemployment rate for the Greek people). SO, in this case we move to increase the transfer payments.Beyond that your criticisms are, I think, silly. You complain about the shortcomings of the plan. But you're judging it from the point-of-view of some sort of 'perfect plan'.First you imagine a 'perfect plan' (the 'Ramanan manifesto') and then you judge other plans based on this. Of course, real world plans aren't so comprehensive as the Ramanan manifesto, so they're all going to come up short.Of course, we could all come up with our own manifestos. Or spend time picking holes in the proposals of others. It's a dull exercise. I don't see the point. Unless it has to do with oneupmanship or some sort of online dick-measuring contest (I strongly suspect that this is really the exercise here — rather than seeing if the transfers plan is operationally sound, this is fast degenerating into who can make the 'better' and 'more comprehensive' plan). In that, I'm not interested. And you can argue with someone else.The Mosler plan is sound. The amount of transfers are flexible and can be adjusted up or down as governments or eurocrats see fit and as changing circumstances necessitate. It's not a panacea to solve every problem in Europe. But if you want that, drop Ramanan a line, I'm sure he'll enjoy putting together a manifesto of perfection that no policymaker in their right mind would listen to. Meanwhile the rest of us humble mortals will carve our humble niches and take things one step at a time.
Philip,Same here, I am bored as well, but again, where is the plan ?The 60%, SGP etc you are referring to are a part of Yanis Varoufakis' plan. External sector deficit is not a fixed number. For a given level of trade propensities, it is dependent on demand here and demand abroad. "Beyond that your criticisms are, I think, silly. You complain about the shortcomings of the plan. But you're judging it from the point-of-view of some sort of 'perfect plan'.First you imagine a 'perfect plan' (the 'Ramanan manifesto') and then you judge other plans based on this. Of course, real world plans aren't so comprehensive as the Ramanan manifesto, so they're all going to come up short."Well, whats the plan actually ?Anyways I am done for now.
Ramanan,"It helps the plan minorly": A crack! ;)"if the debtor nations have a lower population density than the creditor nations. What if it is the opposite ?"Lets define population density; do you mean GDP per capita ie GDP per unit population?If it is the opposite then it is a problem ( I may tend to agree with you), but I dont think you can get there (to the point where the "debtor" nation has the greater GDP per unit population)…."distribution of population has nothing directly to do with competitiveness and output"How much fresh water is there in Greece? Does the European continent drain towards Greece? Dont the rivers in Europe run north? Is it easier to transport production materials across rail/autobahns/barges or dangerous archepelagos? What type of automation centric agriculture are the northern wide plains of Europe capable of producing vice the cut up/steep terrains of Greece? Topology/environment matters to a nations economic productivity. Greece is up against these types of geographic "disadvantages" across the board, (imo so is the entire southern rim of Europe, Italy/Spain/Portugal). Not sure about Ireland but they are way out on the periphery and are an Island nation so that is two counts against them right there…So the mainland north has been blessed with an environment/location that favors economic productivity (as measured) ok they should be thankful for that. But non-moron people in leadership have to recognize this and some sort of population based (people based) adjustment has to be made. This per capita drop idea I think works for now (at least it's "fair")… to correct these REAL imbalances.Aren't you glad that India is not cursed with the moron leadership that the west is stuck with today? Resp,
"Lets define population density; do you mean GDP per capita ie GDP per unit population?"GDP doesn't appear in here. What I meant was that I used relative GDP (i.e., GDP relative to the whole of Eurozone) to guess the population of a small nation such as Greece relative to the Eurozone. Two nations can have same population but very different GDPs and two nations can have the same GDP but different population. It was just a quick method to get numbers such as €30b or whatever. So to quickly get to numbers: 2% or 10% etc …But now we have the population data, so lets move.At any rate, as I asked Philip – what precisely is the plan. He seems to have included a few points not seen earlier anywhere by me. Again, a central government simply doesn't transfer fiscal resources on a per capita basis. It is taking decisions based on judgement, analysis and in reality also due to pressure from special interest groups. This is not a simple decision such as distributing €X trillion on a per capita basis. Even to decide X you need a government, because it changes from time to time. To me the plan just looks like a simpleton solution where the ECB performs a few functions a central government would. It is difficult for the ECB to do that because how much a region needs and terms and conditions attached need an institution. In the end, regions in any nation such as the US receive fiscal transfers from the government. Does the Federal Reserve decide this ? No! So in a more united Europe, it should happen too. But the way it is done is an interactive and iterative process which cannot be performed by a central bank. I am not even sure if the plan works to bridge between the situation now and a situation with higher spending and taxing powers of the European Parliament which would engage in equalization payments. So do the Europeans have to suffer till a central government is formed? Any plan will work only if a central fiscal authority is formed with complete certainty. Else, it just makes the situation worse with debtor nations becoming even more indebted to the rest of the Eurozone and the German FM knows that!PS: No need to put " " around the word debtor IMO 🙂
JKH,Well, I think the suggestion I made earlier deals with one possible accounting variant. But let's be honest: accounting is ALWAYS after the fact record keeping that describes what was done.We can suggest an accounting model but they can easily figure that out if they like the proposal. That's step one, although I accept that your suggestions are very helpful in terms of refining it, as are most of your ideas!
Ramanan,Sometimes the simplest solutions are the most elegant."the ECB performs a few functions": like "lender" of last resort to the system? to avoid economic chaos driven by real factors affecting non-real accounting? sounds like what a CB was created for in the first place.Here is some data on % arable land:http://www.nationmaster.com/graph/agr_ara_lan_of_lan_are-agriculture-arable-land-of-areaYou can see Germany and France (while also being much larger in area) up at 34% and Greece and Ireland are at 20% and under. This coupled with their hydrologic advantages in the mainland north probably accounts for this whole mess in real terms right here.Too bad "Blind guides of the blind" in control for right now… Resp