Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Draghi’s Plea for Europe is an Admission the U.S. Got It Right

admin by admin
September 2, 2014
in Uncategorized
0
0
SHARES
1
VIEWS
Share on FacebookShare on Twitter

by Alan Shipman, The Conversation

Mario Draghi almost single-handedly rescued the Eurozone from disaster two years ago, by pledging to do “whatever it takes to preserve the euro”, so the appeal from the European Central Bank (ECB) chief for more use of fiscal policy to avoid another slump deserves a sympathetic hearing. He is signalling that monetary policy has done all it can. The only option left is to let governments run wider budget deficits.

But in a foretaste of the likely political response, French president François Hollande promptly sacked the two ministers who had spoken out for fiscal relaxation. Hollande was swept into office after making his own stand against austerity, but he and other Eurozone leaders are constitutionally condemned to stay on the path of lower spending and higher taxes, even though France is poised to follow Italy back into recession.

Draghi’s 2012 promise quelled fears of a default by Europe’s PIIGS (Portugal, Ireland, Italy, Greece and Spain), and thereby made it much less likely by reducing their cost of borrowing. But the follow-up strategy, of setting ultra-low interest rates to boost recovery, isn’t working. Banks have been reluctant to lend for new business investment, even when their unlent funds are punished with a negative interest rate. The euro has strengthened against other currencies, when lower interest rates were meant to weaken it and galvanise exports.

This leaves the Eurozone sliding back into recession while other economies, notably the US, post solid output and employment recovery. Forecasts, including the OECD’s, increasingly show the Eurozone’s growth deficiency persisting into the medium term.

The frustration is that the Eurozone should have escaped lightly from the 2008 financial crisis, and bounced back more quickly. It had a smaller and less overstretched financial sector, it avoided the Anglo-American reliance on large capital inflows to finance a wide external trade deficit, and it had spent many years getting its budgets closer to balance in preparation for the monetary union.

Missed opportunity

Draghi’s plea for fiscal activism is effectively an admission that the Americans got it right. When credit dries up, asset values drop, and a self-fulfilling fear of falling profit stops private sector investment, the only way out of the slump is for governments to borrow and spend. Having already run up public debt to rescue troubled banks, insurers and car-makers after the 2008 crash, the US launched a second borrowing spree to fund its “stimulus package”.


Cherry blossom in Washington DC Michael Reynolds/EPA

Critics (including the Republicans who last year shut down the government by refusing to raise the debt ceiling) believed the money would be wasted, causing an inexorable slide towards insolvency. But five years on, US federal debt is peaking below 80% of GDP, while the Eurozone’s is above 90% of GDP and still rising. Because fiscal stimulus rekindled GDP growth, the US found a sustainable route out of crisis. The Eurozone remains trapped in a cycle of public and private belt-tightening which shrinks demand, pushing production down and debt burdens further up.

Some Europeans argue they could not have copied the US, because it enjoys unique financial privilege. A very low default risk, due to borrowing abroad in its own currency, enables the US federal government to fund large fiscal and external deficits at unusually low rates of interest.

But this also brings America unique disadvantages – notably an overvalued dollar that draws in imports and punishes exporters, and global policing duties that overstretch the defence budget. And the EU, with a bigger unified market and monetary space, had the chance to win similar privilege for the euro. Its self-inflicted relapse into Eurosclerosis may have blown that chance.

Germany holds the reins

The Eurozone’s post-2008 path of fiscal contraction, in contrast to the US expansion, was not a reasoned economic choice but a grim political necessity. By design, the zone has no means of administering coordinated fiscal stimulus. Its member governments are obliged to keep their budget deficits below 3% of GDP, subjected to “excessive deficit procedures” if they overstep this. Public borrowing must be financed by Eurobond issues that remain a domestic responsibility, without backing from the zone’s other governments or the ECB.

While most governments can issue debt in their domestic currency, Eurozone members have lost that aspect of their sovereignty, and must effectively do all their borrowing abroad. They’d be freer if the Eurozone as a whole issued Eurobonds, with proceeds to be drawn by member states needing fiscal stimulus. This option is inevitably vetoed by Germany, which would end up underwriting others’ debts and paying a premium for its own borrowing.

Germany is similarly, and understandably, opposed to suggestions that it should unilaterally deliver fiscal stimulus by announcing tax cuts and spending increases that its own economy doesn’t need. But that economy is now suffering the consequences of the fiscal austerity forced on its neighbours – with growth grinding to a halt in the second quarter and collapsing business confidence hinting at a downturn in the third.

That pessimism may be a temporary result of instability in Ukraine which the EU could do little about. It’s more likely to reflect a lasting design fault which the Eurozone is still struggling to address, forcing members to redouble austerity plans which their own central banker is now telling them to renounce.The Conversation

Alan Shipman does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

Previous Post

Study Casts Doubt on the Effectiveness of the Current Bankruptcy System in Providing Relief to Bankruptcy Filers

Next Post

Median Household Income Improves Insignificantly in July 2014

Related Posts

Lab-Grown Meat Draws Closer To American Dinner Plates
Business

Lab-Grown Meat Draws Closer To American Dinner Plates

by John Wanguba
January 26, 2023
New Suppliers Scramble To Plug Into Electric Vehicle Market
Business

New Suppliers Scramble To Plug Into Electric Vehicle Market

by John Wanguba
January 26, 2023
Coinbase Fined $3.6 Million In The Netherlands
Business

Coinbase Fined $3.6 Million In The Netherlands

by John Wanguba
January 26, 2023
Consumer Reports Encourage Dark Chocolate Producers To Minimize Lead, Cadmium Levels
Business

Consumer Reports Encourage Dark Chocolate Producers To Minimize Lead, Cadmium Levels

by John Wanguba
January 26, 2023
Bloomberg To Pay $5M Fine To Settle SEC Charges Linked To Fixed-Income Valuations
Business

Bloomberg To Pay $5M Fine To Settle SEC Charges Linked To Fixed-Income Valuations

by John Wanguba
January 26, 2023
Next Post

Median Household Income Improves Insignificantly in July 2014

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins banking banks Binance Bitcoin Bitcoin adoption Bitcoin market Bitcoin mining blockchain BTC business China crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi Elon Musk ETH Ethereum Europe finance FTX inflation investment market analysis markets Metaverse mining NFT nonfungible tokens oil market price analysis recession regulation Russia technology Tesla the UK the US Twitter

Archives

  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Lab-Grown Meat Draws Closer To American Dinner Plates
  • New Suppliers Scramble To Plug Into Electric Vehicle Market
  • Coinbase Fined $3.6 Million In The Netherlands

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish