Category Archives: Europe

The ECB’s QE Decision

The European Central Bank has just launched full-fledged quantitative easing. This column argues that the ECB’s watershed decision highlights both the strengths and the persistent vulnerabilities of the Eurozone. The limited-risk-sharing provision flags the need for greater fiscal union; and governments should use the respite that QE provides to launch much-needed structural reforms.

That’s their story and they’re sticking to it.

Poroshenko Makes Battle of Donetsk Airport Precondition for New $50 Billion Bailout – Ukrainians Repelled in the Battle of Davos

The machinations over the next round of funding in Ukraine are wild. No one, particularly the US, wants to fund Ukraine and debt default looks likely, yet Ukrainian President Petro Poroshenko is demanding a huge amount of additional funds. Soros is trying to end run the IMF, albeit with not much success so far.

Ilargi: Shadow Boxing and Bogus Crisis Triumphalism

The most that officialdom seems willing to do to deal with the crisis is messaging that it is over. Most people can tell how well that is working.

Benchmarking the ECB’s QE Program

The ECB is set to announce the details of its QE program tomorrow. Many analysts and investors have been trying to puzzle out how its operations might work, since those details will make a difference in what impact if any it has.

Frankly, we are hugely skeptical of this initiative. The US version, which is bizarrely touted as a success, further zombified the economy. It goosed asset prices, which widened wealth and income inequality. Now respectable economists are decrying the widening gap between rich and poor and the lack of class mobility as a brake on growth, yet they also refused to endorse debt restructuring and much more aggressive fiscal spending. And some experts contend that the reason the Fed decided to end QE last summer was that it came to recognize the costs outweighed what if anything it produced in the way of benefits. Of course, they can never admit that publicly or even privately if true.

In Europe, there is even more reason to be expect QE to be at best ineffective. Unlike the US, where as a matter of policy, a lot of financing takes place through the capital markets (for instance, credit card debt, subprime auto loans, home loans are all securitized to a large degree), in Europe, far more credit is on bank balance sheets, and small to medium sized corporate lending is far more important than in the US. Thus, while as we have repeatedly explained, putting money on sale is unlikely to result in more borrowing unless the cost of money is the biggest cost of running your business (ie, you are a bank or a speculator), in Europe you have the added layer that reducing investment yields is unlikely to change how credit officers view lending to small/medium sized enterprises (assuming they even want to borrow) in a weak, deflationary economy.

This Bruegel post describes the major options that the ECB has in designing its QE program, which will help readers benchmark tomorrow’s announcement. One might politely describe the choices as bad and less bad.

The ECB Cold Shoulders Greece on QE

Ed Harrison explains on Boom/Bust why the ECB’s decision to exclude Greece from QE will probably help leftist party Syriza in the elections on January 25.

Bill Black: The Triumph of Radical Right Economics in Greece – At the Hands of “Socialists”

In my January 18, 2015 column, I explained that German Prime Minister Angela Merkel’s sweetest triumph was successfully extorting George Papandreou, Greece’s Prime Minister, head of the Greek Socialist Movemnt (PASOK), and President of the Socialist International, to inflict austerity and a war on workers’ wages on the Greek people.

In this column I explain how radically right-wing the Papandreou Plan was and the completeness with which it embraced rather than resisted the troika’s theoclassical nostrums that forced Greece, Italy, and Spain into gratuitous second Great Depressions. In Greece’s case, the Merkel Great Depression has proven more severe and longer in duration than the Great Depression of 80 years ago. The EC’s Economic Adjustment Programme for Greece description of the Papandreou Plan was accurate. The Greek leaders “strongly own and support the [austerity] programme policies and objectives.”

Michael Hudson: The Crisis in Europe and the Machinations of the Rentier Class

This Boom/Bust show features a wide-ranging talk with Michael Hudson about the impact of the Swiss currency shock, the pending Greek elections, the effects of sanctions, and what the deteriorating Ukraine economy means for Europe.

Why a Grexit Is More Costly for Germany Than a Default Inside the Euro Area

German losses on both official and private claims would be much higher if Greece exits the euro.

Yanis Varoufakis: Why He is Running for Greek Parliament on the Syriza Ticket

I’m putting up the entire Boom/Bust show in which Yanis Varoufakis appears, in part because the introductory section discusses how stressed oil producers may use secured lending to borrow more money in an effort to ride out the price bust. That would lead to a further drop in the price of any junk bonds or market value of any existing loans on those companies, since the new secured borrowing would be senior to the existing debt.

Welcome to the Hunger Games, Brought to You by Mainstream Economics

As a virulent strain of austerity capitalism takes over Europe, leaving shattered lives in its shadow, researchers Servaas Storm and C.W.M. Naastepad, Senior Lecturers in Economics at Delft University of Technology in The Netherlands, consider how things got so bad, what role economists and misguided policy-makers have played, and which models and ideas are needed to change course. In the following interview, they discuss how most are getting the story about Europe wrong. They explain how their research shows that when countries try to compete with each other by lowering wages and slashing the social safety net, the costs are high both economically and socially, and why co-operative and regulated capitalism is a far better path.

Mathew D. Rose: It is Not a Eurozone Crisis, but a European Union Crisis

What the Germans seem to have in mind is a financial blitzkrieg against Greece should Syriza win, reducing the land to economic rubble and dust, an example for other potential refractory Euro nations.

Oil Falls Below $50, S&P Down Nearly 2% (Updated)

Nothing like the smell of deflation in the morning…