TODAY's EU - Italy's finance minister, and Luis de Guindos, his Spanish counterpart, will face a grilling from other eurozone finance heads over their draft budgets in Brussels this morning. Last week the European Commission voiced concerns about the pair's spending plans, warning that they did not go far enough to narrow deficits or reduce debt. While the EU does not have the power to veto individual members' budgets, the European Commission hopes the pressure to explain their decisions to their counterparts will force them to make changes.
The gathering comes as the prospect of a second bail-out looms for Portugal. Several senior officials are concerned that Portugal may need a second bail-out, reported the Financial Times yesterday. The officials site Portugal's difficulties in passing tough economic reforms and the string of bond repayments due in the years after Portugal exits its first, 78bn, bail-out. One troika official is quoted as saying "The jury is genuinely out. We are mentally prepared for either [a line of credit or a second full-scale bail-out". THEY ALL HAVE TO ANSWER TO THE BUNDESTAG - when it comes to their budgets, since Europe is under the natzi Germany boot, but the news is being altered in such a way as the people think that it is Brussells that is runing the EU, when in fact is only Germany!
5 comments:
FINANCIAL REPRESSION
This is in a sense a less overt method of debt restructuring – and another approach Reinhart and Rogoff suggested might eventually become necessary in rich economies.
By measures such as keeping interest rates rock bottom, and obliging banks and pension funds to hold large chunks of (low-yielding) government bonds, policymakers make it cheaper for the government to continue borrowing – at the expense of hard-done-by savers. Hardly unthinkable: it's a pattern already recognisable in both the US and the UK.
FINANCIAL REPRESSION
This is in a sense a less overt method of debt restructuring – and another approach Reinhart and Rogoff suggested might eventually become necessary in rich economies.
By measures such as keeping interest rates rock bottom, and obliging banks and pension funds to hold large chunks of (low-yielding) government bonds, policymakers make it cheaper for the government to continue borrowing – at the expense of hard-done-by savers. Hardly unthinkable: it's a pattern already recognisable in both the US and the UK.
HELICOPTER MONEY
As well as the rather appealing option of dropping bales of cash to be spent by anyone picking them up, this phrase can also refer to central banks printing money to go into government coffers, but with no expectation of getting it back. Otherwise known as "overt monetary finance", is taboo to orthodox economists, because of the perceived risk of hyperinflation. Even appearing to moot it in his final Mansion House speech in 2012 may well have cost Lord Adair Turner the governorship of the Bank of England.
The newly minted money goes to bankroll government deficits, allowing treasuries to chuck austerity out of the window and go for growth.
QE WITH KNOBS ON
Quantitative easing has been practised on a large scale in the US and UK, though it remains all but unthinkable in the eurozone, where Germany is firmly opposed. "The ECB would have real problems putting that into effect, because the Germans would walk out," says Russell Jones of Llewellyn Consulting.
Some economists argue that eventually, there will have to be another large-scale dose, with newly generated cash this time being invested instead of being used to buy up government bonds, or, as in the US, mortgage-backed securities.
Ann Pettifor, director of the thinktank Policy Research in Macroeconomics (Prime), says she would like to see central banks directly financing infrastructure schemes or green projects such as insulating homes – perhaps in the process creating bonds to enable the public to take a stake, too, providing an alternative and more productive home for their savings than the boom-bust property market. "It's about fiscal and monetary policy working together," she says.
It is mathematically impossible for the government spending as a share of GDP to keep growing forever, but it is also impossible for any economy to keep growing forever, if growth involves increased consumption of real resources. At some point in future (if we are not already there) we would have reached the limits of rate of resource consumption. Economies can continue to grow beyond that point but only by commercialising hither to non-commercial activities that do not result in any additional resource consumption. The list of such services is endless, blogging services, commenting services, child care services (taking care of one’s own children), hell, even self care services (taking care of one’s own self). The government can be the buyer of excess capacity for these services i.e, if no one else will pay for these services, the government will.
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