Nobel Laureate speaks out on the euro

Boring Cruel Romantics, by Paul Krugman, Commentary, NY Times: There’s a word I keep hearing lately: “technocrat.” … I call foul. I know from technocrats; sometimes I even play one myself. And these people — the people who bullied Europe into adopting a common currency, the people who are bullying both Europe and the United States into austerity — aren’t technocrats. They are, instead, deeply impractical romantics. …

And to save the world economy we must topple these dangerous romantics from their pedestals.

Let’s start with the creation of the euro. …Europe’s march toward a common currency was, from the beginning, a dubious project on any objective economic analysis. …

So why did those “technocrats” push so hard for the euro, disregarding many warnings from economists? Partly it was the dream of European unification, which the Continent’s elite found so alluring… And partly it was a leap of economic faith … driven by the will to believe … that everything would work out as long as nations practiced the Victorian virtues of price stability and fiscal prudence.

Sad to say, things did not work out as promised. But rather than adjusting to reality, those supposed technocrats just doubled down — insisting, for example, that Greece could avoid default through savage austerity, when anyone who actually did the math knew better.

Let me single out in particular the European Central Bank (ECB), which is supposed to be the ultimate technocratic institution, and which has been especially notable for taking refuge in fantasy as things go wrong. Last year, for example, the bank affirmed its belief in the confidence fairy … that hasn’t happened anywhere.

And now, with Europe in crisis — a crisis that can’t be contained unless the ECB steps in to stop the vicious circle of financial collapse —… Mario Draghi, the ECB’s new president, declared that “anchoring inflation expectations” is “the major contribution we can make in support of sustainable growth, employment creation and financial stability.”

This is an utterly fantastic claim to make at a time when expected European inflation is, if anything, too low, and what’s roiling the markets is fear of … financial collapse. …

Just to be clear, this is not an anti-European rant, since we have our own pseudo-technocrats warping the policy debate. …

So am I against technocrats? Not at all. I like technocrats — technocrats are friends of mine. And we need technical expertise to deal with our economic woes.

But our discourse is being badly distorted by ideologues and wishful thinkers — boring, cruel romantics — pretending to be technocrats. And it’s time to puncture their pretensions.

Amusing that this comes out the day that Heseltine says the UK will join the euro soon enough, a few days after Schauble said the same thing, a couple of weeks after Huhne said it would all have worked if only he had been in charge.

It was an economic policy being brought in for political reasons, in defiance of economic logic. It should never have been done and once it was it was always going to end in tears.

Can we leave yet?

6 thoughts on “Nobel Laureate speaks out on the euro”

  1. Leon Brittan wrote a wonderously surreal piece in the weekend paper, arguing that the problem with the Euro was that Britain didn’t join, because if she had that would have Changed Everything. Arsehole.

  2. So where does this leave Robert Mundell? A technocrat who was misappropriated by European romantics? Hard to believe.

  3. Just slightly OT, but for your continued amusement over the Euro and Schaueble:

    And did he prevent the fine for production surplus? Not really. If I read this correctly, he only got leeway to 7% surplus, and then the fines kick in anyway, check the last sentence out…!

    I wonder, do you think we will see yet more magnificently efficient self-sabotage? Every time I think they’ve run out of suicidal ideas by now, they manage to outshine themselves!


  4. The obvious , if somewhat counter-intuitive, answer is that to save the Euro, Germany must leave. Its very existence within the Eurozone is sucking all the long term capital into bunds for fear of a Euro break up and that a Euro denominated Italian bond becomes a Lira denominated bond 25% lower down. A currency default if you like. As it stands liquidity will remain pooled in the bund until someone leaves the Euro. If it is Greece, all the remainig liquidity in Portugal will flow to Germany. Then Ireland, then Belgium. All the way through the 16 members. As each weak country leaves, the remaining Euro becomes more DM like and rises, so exaggerating the competitiveness problem. Ultimately only the DM remains, while all the other birds have been evicted by the German Cuckoo. We should cut to the end game and kick the cuckoo out, give Germany back a DM and a Bundesbank. They can be in Europe but not the Euro. The rest of the Eurozone can easily self fund now that their liquidity is normalised, the ECB takes no loss on Euro bonds, indeed nor do any of the Eurozone banks (so no recap needed). Even better, they sell their DM bonds at a large premeium and buy higher yielding Euro denominated bonds. The only losers are the German Banks, but given that a) they should be fully provisioned and b) they caused a lot of the problem in the first place as Germany pursued an identical mercantilist strategy to China and recycled their C/a surplus through the bond markets of their “victims” thus fuelling the debt driven binge that enabled them to rebuild their economy via exports, then they probably deserve a bit of payback.

  5. “can we leave yet?”

    Cameron is beginning to remind me of Major “King” Kong riding the EU nuke to oblivion. He has his mission, and nothing is going to stop him from completion.

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