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Tuesday, February 25, 2014

Roger Farmer : My Economic Window: My Quiz for Wannabe Keynesians

My Economic Window: My Quiz for Wannabe Keynesians

The long haul: managing exit from financial assistance | Guntram B. Wolff, Zsolt Darvas and André Sapir at Bruegel.org

The long haul: managing exit from financial assistance | Guntram B. Wolff, Zsolt Darvas and André Sapir at Bruegel.org


A good exposition & summary is by  Gabriele Steinhauser at Real Time Brussels (WSJ)

From the Conclusion



In the case of Greece, we propose a four-point plan: Greece will need to reach a balanced budget by 2018. Since a return to markets will likely proveimpossible, a third financial assistance pro-gramme amounting to about €40 billion up to2030 would fill the financing gap, ie  Greece  would not need to borrow from the market at all. Such abaseline would include further lengthening of European lending to Greece and the reduction of the interest rate spread to zero on the Greek LoanFacility. Greece could be taken out from the market until 2030 and even beyond by such a third pro-gramme  amounting     if  the primary surplus        and  pri  vatisation   targets   are reached. Continued effort is  needed to increase Greek growth. Continued sur-veillance will be beneficial to foster change andcould also be a positive signal to investors. Fur-ther measures to kick start growth will be neces-sary and should include additional funding for investment. New ideas – such as introducing acompetition among regions on good governance to access funds – should be explored. Further measures to enhance competition should be pursued. 




Greece's debt trajectory would still be vulnerable to negative shocks, in which case debt dynamics would derail. In such a case, the funding gap couldonly be closed by reducing interest rates below funding costs or touching the principal. TheEurogroup should announce its readiness toreduce    EFSF/ESM lending    rates   to zero if there is a  significant deviation from the baseline scenario, provided the country implements the required reforms and achieves the required primary budget surplus. Announcing such readiness is crucial.Otherwise the risk is that high public debt will con-tinue to undermine investment. What should beborne in mind, however, is that zero lending ratesgo against EFSF/ESM rules, which would need to be modified. In addition, obviously, EFSF/ESM shareholders would have to pick up the tab tomake up for the difference between lending ratesand borrowing costs.





Thursday, February 20, 2014

Deborah Boucoyannis : Contrary to popular belief, Adam Smith did not accept inequality as a necessary trade-off for a more prosperous economy | EUROPP

Contrary to popular belief, Adam Smith did not accept inequality as a necessary trade-off for a more prosperous economy | EUROPP

The Troika and financial assistance in the euro area: successes and failures | Guntram B. Wolff, Carlos De Sousa, André Sapir and Alessio Terzi at Bruegel.org

The Troika and financial assistance in the euro area: successes and failures | Guntram B. Wolff, Carlos De Sousa, André Sapir and Alessio Terzi at Bruegel.org




Highlights 
Executive Summary
""The size of the programmes reflects the magnitude of the imbalances that had built up in the pre-crisis period.""..
..""The Greek programme cannot be judged as successful at this stage.""...
...""there is widespread doubt that the country will be able to regain market access without some form of write-down of its publicly-held debt""...
...""Economic adjustment programmes in the euro area involve three types of conditionality: fiscal measures aimed at reducing public debts and deficits; financial measures to restore the health of the financial sector; and structural reforms to enhance competitiveness.""...
In the case of Greece, it is hard to see how the country could exit from its programme at the end of this year without some form of further debt relief and an accompanying framework to improve the structural drivers of growth.   
Overall Assessment
Correcting the major disequilibria in the Greek economy was bound to be a titanic challenge. The combination of excessively large public and private debt, an overvalued real exchange rate, a fragile government apparatus, languishing political ownership, and a weak and closed business sector meant that adjustment was going to prove challenging. The policy conundrum was further aggravated by the initial European indecision as to how to deal with a debt crisis in monetary union, the increasing hostility vis-à-vis further assistance to Greece, and even threats to push Greece out of the euro. Given these circumstances, the fact that Greece managed to stay in the euro can be considered a success
The Troika was not responsible for the extraordinary circumstances. Yet, it is clear that the programme was not robustly designed. This fact was already well-known at the beginning of the programme: internal IMF documents made public by the Wall Street Journal show that from the beginning, very serious concerns were raised on the debt sustainability and the fragility of the programme.
The Troika was not responsible for the extraordinary circumstances. Yet, it is clear that the programme was not robustly designed. This fact was already well-known at the beginning of the programme: internal IMF documents made public by the Wall Street Journal show that from the beginning, very serious concerns were raised on the debt sustainability and the fragility of the programme.
 The Troika was not responsible for the extraordinary circumstances. Yet, it is clear that the programme was not robustly designed. This fact was already well-known at the beginning of the programme: internal IMF documents made public by the Wall Street Journal show that from the beginning, very serious concerns were raised on the debt sustainability and the fragility of the programme. The Troika and European political leaders did not err on the side of caution and did not allow for a programme to be calibrated with greater chances for success, including accepting an early debt restructuring. The misreporting of Greek public finance should have been an early warning that should have led to more caution. Pisani-Ferry, Sapir and Wolff (2013, p75) concluded:
""
“Political reluctance in Europe to start debt restructuring, the fear of potential moral hazard effects and the absence of effective mechanisms to contain its possible financial fall-out made this option unappealing. The alternative, nearly-concessional lending within the framework of a large and long-lasting assistance programme, was not politically  palatable either. This conundrum led the IMF and the EU to bet on the materialisation of optimistic tax revenue and privatisation assumptions. Instead of formulating a robust programme capable of withstanding adverse economic, political and financial developments, they did just the opposite. It is no  surprise that these optimistic assumptions were not vindicated by
  events.” 
Under all the three criteria outlined at the end of section 2 as measures of programme success, financial assistance to Greece cannot be deemed successful at this stage: price and non-price competitiveness seems far from being restored, financial market access will most likely not be re-gained in the near future, structural reforms are progressing only at slow pace, and Troika programme assumptions were amply  proved wrong.
Greece stayed in the euro, a return to the markets may become eventually possible, but certainly the  programme can be considered as the least successful one within the euro area. The issue of social fairness has become more important, both in the Troika documents as well as in the public discourse, yet little  progress on reducing the fundamental unemployment problems, especially for the young, has been made to date. Overall, the path to a successful exit from the programme is not yet fully chartered and visible.







Saturday, February 15, 2014

Levy Economics Institute : Latest 2 pub's


Prospects and Policies for the Greek economy  (pdf)


The Myth Of The Greek Economic "Success Story" (pdf)

 Επειδή, μάλλον, τα δύο πονήματα θα περάσουν απαρατήρητα απο αυτούς που "μετράνε", τα φέρνει στο φως η "Αυγή"(!!)

Benoît Cœuré: Exchange of views on the ECB's role in the troika

Benoît Cœuré: Exchange of views on the ECB's role in the troika



A disorderly default would have resulted in a meltdown of the financial
sector and in a collapse of the real economy. Social hardship would have
hit the citizens of the programme countries much harder. And let us
also not forget that in one case there was an extensive debate on the
potential exit from the euro area. 

Friday, February 14, 2014

France and Germany must both change economic strategy | André Sapir at Bruegel.org

France and Germany must both change economic strategy | André Sapir at Bruegel.org

For a Euro Community | the Eiffel Group at Bruegel.org

Lars P. Syl : How to make economics a realist and relevant science | Real-World Economics Review Blog

 How to make economics a realist and relevant science | Real-World Economics Review Blog



The voice of reason suggests that we:

(1) Stop pretending that we have exact and rigorous answers on everything
(2) Stop the childish and exaggerated belief in mathematics giving answers to important economic questions.
(3) Stop pretending that there are laws in economics.
(4) Stop treating other social sciences as poor relations.
(5) Stop building models and making forecasts of the future
based on totally unreal micro-founded macromodels with intertemporally
optimizing robot-like representative actors equipped with rational
expectations.