Not much of a plan, but note that it now makes ECB centric proposals respectable.
This is serious progress:
Ex-ECB Chief Trichet Unveils Bold Plan to Save Euro
May 17 (Reuters) — Europe could strengthen its monetary union by giving European politicians the power to declare a sovereign state bankrupt and take over its fiscal policy, the former head of the European Central Bank said on Thursday in unveiling a bold proposal to salvage the euro.
The plan offered by Jean-Claude Trichet, who stepped down last November as ECB president, would address a fundamental weakness of the 13-year-old single currency, the survival of which is threatened by the Greek crisis.
The monetary union has always defied economic principles, because the euro was launched ahead of European fiscal or political union. This has caused strains for countries running huge budget deficits – namely Greece, Portugal, Ireland, Spain and Italy – that have led to financing difficulties and over-stretched banking systems.
For the European Union, a fully fledged United States of Europe where nation states cede a large chunk of fiscal authority to the federal government appears politically unpalatable, Trichet said.
An alternative is to activate the EU federal powers only in exceptional circumstances when a country’s budgetary policies threaten the broader monetary union, he said.
“Federation by exception seems to me not only necessary to make sure we have a solid Economic and Monetary Union, but it might also fit with the very nature of Europe in the long run. I don’t think we will have a big (centralized) EU budget,” Trichet said in a speech before the Peterson Institute of International Economics here.
“It is a quantum leap of governance, which I trust is necessary for the next step of European integration,” he said.
His proposal was presented in Washington on the eve of the G8 meeting of the world’s major economies, hosted by U.S. President Barack Obama who will press Europe to intensify its efforts to resolve the sovereign debt crisis, which threatens a fragile global recovery.
It also comes ahead of a critical meeting of EU leaders on May 23 to discuss ways to support growth. Its strict budgetary policies to date have led to recessions in many countries, political unrest and in Greece a political stalemate after recent elections.
Trichet said the building blocks already are in place for moving ahead with his fiscal plan.
Countries have agreed to surveillance of each other’s budgets and they have agreed to levy fines on countries that run excessive budget deficits, giving them fiscal oversight authority.
The next step would be to take a country into receivership when its political leaders or its parliament cannot implement sound budgetary policies approved by the EU. The action would have democratic accountability if it were approved by the European Council of EU heads of states and the elected European Parliament, he said.
The idea earned a warm reception from leading economists and prominent Europeans attending the session.
“It is a very radical proposal, couched as a modest step,” said Richard Cooper, international economist at Harvard.
Caio Koch Weser, former German economics minister, said he found it “very attractive” because it addresses the problem of a strong European Central Bank, a weak European Commission which acts as the EU’s executive branch, and a confused European Council, which provides political leadership.
Will never fly. Greece, for one, has already rejected outside political control. No one could understand why the UK rejected the Euro a decade+ ago, but obviously they knew what they were doing.
@Vincent, It could never work, what a waste of a decade by so many people who had nothing better to do with their lives. There isn’t a common language, they can’t even properly communicate with each other, I will never understand the people who pushed for a united states of europe without realizing that the USA had a common language at the least, not to mention all the other similarities.
What should the EURO language be? German, French, Italian?
We don’t have this problem in the USA, should the language be californian language, floridian, new yorkian? LOL! See how silly that would sound? Bye bye european union.
@Save America, Does anyone speak english in Miami?
@MamMoTh, LOL! To really illustrate your point you should point out some texas towns that are mostly settled by mexicans who speak no english – I can still navigate miami w English. Remember the alamo and davy crockett! Maybe in another generation or 2 they will have enough numbers to make texas an independent spanish speaking nation. Have thier own oil and gold backed currency to boot, I hear texas pension funds already hoarding massive amounts of gold. (like they can stop the other states from sending in the troops to liberate it all from them)
Sounds like they want the right to use bullets against those who don’t toe the line.
@jonf, You are in a bowling alley with warren mosler, and he has a gun pointed at your head, and if you don’t listen at his memes about score he will blow your head clean off! It isn’t going to work though, because he is shouting orders in german and the bums in the room only understand italian and spanish!
“declare a sovereign state bankrupt and take over its fiscal policy”
A lot like declaring that euro countries are banks and the ECB is the FDIC.
Does that imply all lower class citizens are “deposits?”
Good or bad, it certainly is “bold.” Give’s them one heckuva distance to back back away from outright fascism. Maybe the Koch bros suggested it.
@roger erickson, A long time ago I had an IBM token ring network with some IBM computers and a twin ax connected AS400, and I tried to hook up some next workstations and some apple macintosh computers and even a few IBM PC clones that had been on an ethernet network. (some of the employees wanted to connect some amiga and atari ST computers to the network through their MIDI port) Even with all the bridges and routers, stuff started getting complicated quick! Talk about a HUGE massive investment in time and money and stress. At the end of a few years we just got all IBM clones with ethernet 10 base T networking, made things so much easier than trying to get all these diverse pieces of hardware and software working together.
Then some executives wanted to connect up to the FDDI fiber stuff, corporate HQ thought it would be great to connect all the computers together you see, we never were able to get the Atari ST to send printer commands to the network connected Macintosh.
Not too long ago we lost a NASA lander at MARS because one set of scientists were doing things in metric, and the other set of scientists were not.
It is obvious these bankers that rule over so many people are total baffoons! As much as you want to integrate large networks because it makes sense at the HQ level, there are things that need to pre-exist for it all to link up easily. What is the national EURO language going to be for all these nodes to communicate with each other? I am trying to learn mandarin myself.
@Save America, Buffoons or geniuses?
Having multiple languages is only a disadvantage for those who don’t speak the other language(s), or who can’t afford interpreters. What is a bank besides an information interpreter, anyway?
@pebird, exactly. Yet, in the wrong hands, & wrong electorate, an info system (or a bank lobby) is a idiotic tyrant, even if by default.
@pebird, Solvency V Purchasing Power – how to frame the discussion?
This was a good article by weezy that is MMT friendly it seems, but I liked one of the comments:
“”Ivan on May 20, 7:29 AM said:
While it’s correct to point out the difference between countries with fiat currencies and those with flawed monetary regimes like the EMU countires, it’s incorrect to imply that a government printing press offers permanent protection from debt crisis. At some point creditors will perceive the poetntial for governments to use inflation as a preferred method of effecting expropriation and demand that future borrowing be denominated in another currency. Look at the Latin American Debt crisis of the 1980s.””
When I was in Croatia, everyone was SO ANGRY that thier house loans were denominated in Swiss money, not the local croatian currency, my friend used me as a tool to get his loan reworked into being croatian money denominated. (apparently the banks over there like rich americans who open accounts with them) 😉
Mosler says that Obama has went to the chinese to beg for them to finance us, (so by proxy we can go get oil and opium for them in the middle east).
I hear the fed is letting the chinese banks come into our depository system, soon they can finance my new made in china car and made in china walmart stuff in chinese yuan, then Mosler is gonna have a problem on his hands, all these US people with chinese loans denominated in YUAN in a government I can’t vote in, then I am gonna be screwed like my friend in Croatia was who had loans denominated in swiss francs! 🙂 But I am gonna be smart and like zuckerberg marry me an asian woman who speaks mandarin so we can have dual citizenship!
An enforcement mechanism is needed of course, but it would be a quantum leap indeed.
The fiscal pact from last December has been ratified by only 3 countries until now and everybody expected that that would be done by end of March. What has caused the delay? In hindsight no so good pact?
I assume that such ‘federation by exception’ -enforcement mechanism also will require ratification by all member states individually. Easier said than done. But it’s time for them to make up their mind.
Greece should immediately propose a quid pro quo. Have the Greek Ministry of Arts declare Germany artistically bankrupt, and take over it’s human rights policy.
Oh my God.
Let’s try to remember that the “fiscal policy” of a country’s government consists in all of that government’s taxing and spending decisions. In other words, it consists of virtually all of the activity of the government, since all government action requires spending. Taking over a government’s fiscal policy means taking over the government; and taking over the government of a country means taking over that country.
What is perverse is that these technocrats and bankers think that a democratic political union – A United States of Europe – is “politically unpalatable”. But apparently some alternative, more authoritarian model in which the bankocracy is simply able to take over the management of countries they believe are mismanaged is palatable?
I’m a peaceful guy who has never owned a gun. But if I’m a European who woke up to read this kind of stuff in the paper, I would start thinking about finding a a way to obtain one.
Agreed. This plan, and especially its warm reception, show that the Euro-elite are willing to contemplate naked tyranny in defense of their broken economic system.
The likely eventual consequence of such a ‘bold’ plan would be civil war in Greece. How far the Euro-elite would be prepared to go in supporting the ‘forces of order’ (i.e., their quisling regime) is an interesting question.
@Dan Kervick, ” Taking over a government’s fiscal policy means taking over the government;”: Can’t boil it down and write it any plainer than that…. Resp,
@Dan Kervick, I was really wondering if this could be considered ‘progress’. If there is a big negative demand shock in a country … how about a real-estate bubble popping in Spain, then is the country allowed to run a big deficit? Or, is this just a more formal mechanism to enforce a one-size-fits-all (at all times) fiscal policy (i.e. austerity during a recession)?
@Dan Kervick, PS here is the section of US Code wrt Treason:
“Whoever incites, sets on foot, assists, or engages in any rebellion or insurrection against the authority of the United States or the laws thereof, or gives aid or comfort thereto, shall be fined under this title or imprisoned not more than ten years, or both; and shall be incapable of holding any office under the United States.”
From a US legal perspective, looks like Trichet would be pushing it here, dont know about over there…… Resp,
Define “authority” – ‘cuz banksters & the 1% already think they have it.
Dan is over-reacting. North European bureaucrats have already moved into the Greek ministry of finance to keep an eye on what is going on. In Britain, there are various local authorities or local authority departments which occasionally get taken over by central government if they are badly run or descend to chaos.
As to the U.S., what would happen if New York City went bankrupt? Presumably the Federal government would send in people to run the place for a while.
This all looks good from the British perspective – knowing that the UK opted out from most of the “inventions” limiting national sovereignty. Europe is not “federal” not because there were no pragmatic reasons to unify these so diverse countries having nevertheless so much in common but because the majority of people rejected that idea. I was born and grew up in Poland (my ancestry is not 100% Polish but this only made things worse in 1939-45 – I still haven’t got to the bottom what happened then with my family as certain facts were simply concealed in order to survive). Even if this is irrational I cannot imagine living in a country ruled or supervised by the representatives of Germany. This is not the same as not living in democratic EU.
I am happy in Australia which is a sovereign country but I have nothing against the idea of limited political and economic integration – in our case with the US (not to mention New Zealand). We have a free trade agreement, it’s easy to travel, do business or even settle in another country, etc…
I don’t hate Germans – I visited that country a few times and I found people living there very friendly, much friendlier than in France (yes I did try speaking English in France with a well-known result).
I simply think that this is not appropriate for German / Dutch/ Polish/ French bureaucrats to directly supervise other countries and meddle in their internal affairs. For the same reason the Indians rejected British rule.
How would you feel if the budget of your city was approved by the grandson of the German pilot who had dropped bombs on Britain in 1940 – and you knew that he was not acting in the interest of the local population but German investors including retired children of members of Waffen SS?
Please be aware that there is a significant number of people in continental Europe (especially countries having so convoluted history as Greece) who think that working for the Euro bureaucrats representing mainly German interests is indeed a treason.
If these sometimes a bit irrational feelings are ignored, this will increase the influence of true fascists. You know perfectly well how this may end. I can tell you one thing for sure – if in Poland unemployment was 25% in 2012 there would be an authoritarian and ultraconservative government led by “Prawo i Sprawiedliwosc” – as bad as in the period 1926-1939 or worse. There is also a greater than zero risk of true fascists and Catholic fanatics seizing power.
This all worries me so much that’s why I came back from the “semi-retirement” on blogs. The next few months are critical.
This seems rather dangerous from a political stability standpoint. Look at all the political mess in Greece now and that’s without foreign intervention. They tried something similar in Michigan recently with the state being able to appoint a “financial manager” who basically takes over the government of a municipality. It was wildly unpopular and viewed as anti-democratic, and that’s on the city council level. A country declared bankrupt under this system would be effectively an occupied power being administered from abroad and the people in said country would have no way political means to replace their leaders. If the Greek police were to decide they don’t want to follow orders from Brussels, what happens exactly?
Presumably Greece’s new masters in Berlin/Frankfurt/Brussels would rely upon a collaborationist regime of technocrats, appointed by themselves–and crucially as well upon the political support of those elements of society whose loyalty could be secured by a combination of continued Euro purchasing power and undiminished pan-European social status, respectability, and mobility.
As long as the Euro-denominated paychecks kept flowing to the army and police, such a regime might hold out for a long time. The question however will then become how much bloodshed populations in the core are willing to see committed in the name of European unity. Given the Continent’s history I would not necessarily assume that the threshold is especially low.
Warren, you called this progress. Easy to see why it would be progress to Merkel, but to PIIGS citizens who want their countries to remain sovereign?
@Beshiva, if they want the Euro, which they apparently want, then they can’t remain sovereign.
@Beshiva, I think he means it is progress because now other leaders can come forward to defend less drastic ECB-based proposals for CB funding of sovereign governments, and they will be in the position of the moderate alternative to Trichet.
@Dan Kervick, You better hope so. They’re playing with fire, just like 1999 when they set up the euro. Many noted the flaws, but most said: “We’ll fix those when they become a problem.”
What happens if existing elites all agreed to Trichet’s plan?
“Trichet” would become synonymous with “Quisling” and everyone would agree – a decade later – that it was all a terrible mistake.
We think our politicians are buffoons. Those in Europe are both naive & deceptive. Ours may actually be the slightly lesser evil.
@roger erickson, no, they are just as evil
the progress was the ecb support part
I still like Randy’s suggestion of 15 years ago.
To avoid individual countries breaking their limits, the ECB implements a JG scheme bringing about and maintaining full employment. I can t believe he wrote that in 1997 as the euro was just getting underway.
Why don’t they just change whichever treaty it is and let the ECB do some serious quantitative easing? Bond yields would drop…
@y, Moral hazard. Would be the same as FED buying bonds from individual states like California etc. It would take away the pressure to reform etc.
Would motivate to maximize deficits.
best to let the greek economy fall to pieces then
Taxes suck money or Taxes pull money. MMT is really bad at using the english language to promote ideas. For example MMT?? Is it a theory? No. It actually describes how things are. Not how they should be, or how they can be if we believe enough. MMTers(stupid word, should be Chartilists) please use a dictionary and thesaurus before publicizing phrases. Money isn’t a car, nor is it some substance that is ‘pushed’ by ‘taxes’. Do we say that the vacuum cleaner ‘drives’ dirt into the vacuum bag?
in physics as above, it’s outside pressure that pushes things
there is no pull force
I think your clutching at straws there Warren. Strictly speaking it is the difference of pressure between two spots. There is neither a push or pull force, if you want to play such games.
BTW, can please explain the concept of gravity without using any word that shares the same or similar meaning as pull?
Try field equations & space/time curvature.
In practical terms, even a vacuum doesn’t “pull” anything. It receives what a force gradient “pushes”
Anyway, can we move on to items more practically relevant?
Right, because most people understand higher-order mathematics. This is practically relevant. The names of abstract concepts should convey as much correct meaning as possible. First impressions last. If people have an incorrect understanding of a concept because of assumptions stemming from that name of that concept, then obviously that isn’t going to benefit anyone. This is happening with a few MMT concepts.
Like I have said else-where this is about reducing barriers for new-comers. Ideally, children should be able to understand it. As long as MMTers have an attitude that demands newcomers have some pre-level of knowledge, then these barriers will continue to exist.
If you want to see the power miss-naming has then look at “free-market” vs “fair-market”. It is interesting how ‘they’ applied the meaning of the latter to the former. Everyone believed that a ‘free-market’ was a ‘fair-market’. Most people knew that there was something wrong with the media version of concept of ‘free-market’. But, people couldn’t put their finger on it. It had the wrong name…. That subtle difference had great consequences.
If you wanted to spark a lively debate with this post, your goal has been achieved.
I agree with the majority of the critical comments. This plan is a dangerous slippery slope leading to a string of fascist coups. I think that the true intention of Mr Trichet was rather to annoy the Greeks to such extent that they decide to leave on their own.
The plan is the shortest path leading to reactivate the Euro Madness from 1914-1920, 1933-1945 (and the little Yugo Madness from the 1990s).
So Mr Trichet will seize control of the fiscal policy – what will happen if people in Greece or Southern Italy refuse to pay taxes to German tax collectors? Will they send troops? What if Greek troops refuse to subdue the rioters? People remember what happened there last time.
Don’t tell me that this is impossible. We still haven’t finished cleaning up after the mess created by Milosevic (and others like Tudjman) in the heart of Europe.
There is enough politicians who already use words “treason” in Poland and want to put their opponents at least in jail if not worse. The relentless right-wing “mainstream” propaganda of hate brings about the only possible result – violence.
“24-years old man from Bialystok was beaten to death in front of one of the pubs. 11 people could have been involved in the brawl. 8 of them have been arrested by the Police. A few of them are members of the neo-fascist terrorist organisation Blood and Honour”.
Obviously you won’t read about that on English speaking media before the Euro soccer championship.
Not to mention what’s going on in Hungary. Not to mention the Golden Dawn of Greece.
Democratic endorsement from the European Parliament is not enough. In the current constitutional order anything what relates to Greece must be approved either by Greek parliament or by the Greek people in a referendum.
The key issue is that not the deficit but surplus countries bear responsibility for the imbalance. The Germans are those who must be disciplined into buying more from Greeks so that the debt can be repaid – if it’s ever to be repaid what I doubt is possible. This was obvious to Keynes who put forward a working proposal, rejected by the Americans.
Obviously this is not a solution to the Euro crisis. But any working solution must go along these lines.
So this is my AK’s plan:
0. Scarp the previous austerity agreements and reverse bond haircuts.
1. Instruct ECB to purchase all the outstanding Greek debt so that bond yield is stabilised at 4%
2. Since Greece and other PIIGS countries have lost access to bonds markets, an explicit agreement at the European level needs to be reached in regards to the level of financing of budget deficits by the ECB.
3. A land/property tax needs to be enforced in all the PIIGS countries so that the fiscal black hole is plugged. There is no need for the ECB to directly subsidize the rich plutocracy.
1. Let some of the PIIGS countries leave Euro and forgive debt while maintaining other aspects of European Union treaties. No society should be collectively punished for the fact that the arithmetic (especially integration of negative flows into stocks of debt and interest compounding) worked against them.
… actually there is a myriad of possibilities how to unscramble the omelette before the bank run takes its course. Personally I think that it is too late but let’s have a shot at fixing the unfixable.
1. Greece (or other PIIGS countries) declare bankruptcy but remains politically sovereign.
2. An European Treasury is created. All the sovereign debt is transferred to a special European Treasury bonds account. Greek (Spanish) bonds are bought at zero discount by that fund in exchange for EU bonds. The problem of servicing past debt is solved but the country loses a significant portion of fiscal sovereignty (already reduced when they joined Euro)
3. European Treasury bonds are not guaranteed by the treasuries of the member states and IMF plays no role in the exercise. They are guaranteed solely by the ECB and the variable yield is fixed to the short-rate funds rate. The yield curve is therefore flat by definition since the risk (of the bonds not being bought back by the ECB) is by definition zero. In the future (when the crisis is over) the European Treasury may levy uniform taxes applying across all the Eurozone countries – if fiscal policy requires reducing excessive aggregate demand (leading to inflation). This mechanism allows for transparency in managing fiscal transfers between the Eurozone countries. These transfers are inevitable.
4. The Greek Treasury can no longer sell any bonds since it has declared bankruptcy. It also doesn’t have to / cannot bail out any commercial banks. The Greek Central Bank is dissolved (as bankrupt) and functionally replaced by the ECB and the European Treasury. The Greeks are therefore on their own in financing purchases of submarines, wasting money on organising another Olympics and similar exercises in futile fiscal stimulation. However there is only minimal supervision of the internal affairs – no Troikas or anything like that. Greece becomes like states in Australia or the USA minus the ability to issue debt instruments. They have full fiscal autonomy.
5. The European Treasury finances a Job Guarantee program in Greece, with minimal wage set slightly above the current level of unemployment benefits indexed for CPI inflation. Unemployment benefits will only be paid for 6 months. This prevents rorting the system. If somebody is voluntarily unemployed and not willing to accept any job for a subsistence wage or emigrate to Germany, nobody should finance healthy work-shy people. Here I agree with Tony Abbott. When the JG program is in place, the involuntary unemployment is set by definition to zero. The side-effect of the program is a massive wage deflation restoring the competitiveness of Greek economy. Organising the JG programs can be outsourced to private firms from any EU country.
… but wage deflation can only work when there is no debt to service otherwise the country is in a deflationary trap. Public debt of Greece has been removed in exchange for the loss of partial fiscal sovereignty. Private debt is another issue but since Job Guarantee is in place, at least some people will be able to remain solvent.
I disagree with Paul Krugman that inflation is the only medicine.
@Adam (ak), @Adam (ak), “Yugo Madness from the 1990s”
I stopped in croatia for a few weeks last year to visit an old college friend whose daddy sent him to USA to be safe during the war. I said why USA, he said because USA is the best and safest. I said WOW! A follower of TITO having a bigheaded american viewpoint – who woulda thunk!?
He always made it a point to say he was from Opatija, the resort side of the country, and not from the goatherder side where the yugo car was made.
After all the bloodshed and destruction and violence, it was amazing to me how much hatred still exists, god he hated the albanians, he hated the serbs, he hated many of his fellow croats who he thought had bought up lotsa cheap properties during the war and were now mega millionaires. Most of all he hated switzerland though, cause those swiss loans on his house was breaking his back.
The only people he seemed to love was the montenegrons because he said they stopped that french bastard napolean. He said war was going to be part of that region of the world forever because it was in the blood and genetics of the people, that they were all descended from the persian empire and iran and loved to kill and fight.
The roads were great though, much better than in many places in the USA.
This Trichet proposal is tantamount to creating a Federal State more powerful than the U.S. (right of intervention in members of the Federation) without Federal tranfers to the economically weaker states.
In other words, outright colonialism minus the “civilizing mission”.
European “humanism” is thus about to reach a new plateau. The former great powers of continental Europe cannot dictate terms to the rest of the world anymore (the Americans have been taking care if that since 1945 and show no signs of relenting). But they are still suficiently powerful to immiserate the periphery of the continent and condemn it to permanent colonial status. If the PIGS decide to stay in the euro out of misplaced fears of “isolation” they now know what will be awaiting them.
Who’s thinks they are driving: Map of Europe: 1000 AD to present day ??
@jrbarch, Gerrymandering at warp 10? LOL!
@Save America, Yes sa, politics occupying all points in the universe simultaneously (warp 10) – they probably think so!
A shifting kaleidoscope of colour: beneath it all are real mountains and real forests, lakes, rivers and people – not a border in sight. Billions of people coming and going over that 1000 year period and barely a trace of most of them except for a few ruins here and there; a few ‘stories’ that get retold. Recyled in the skin of the earth. I think most of those people, just like the ones that are here today, would have wanted to live their lives in Peace; enjoyed being alive, given the opportunity.
Except our ‘world leaders’ have their sights set much lower than that. I wonder if the human soul will renounce the fraudulent burden in Europe (and elsewhere)? The political and economic colours that preclude the reality of being alive – being human! One species, one precious earth, and the age old desire to enjoy existence: to grow and to learn and blossom as a human being; to live in Peace ……
@Colin, Unproductive, Colin. SA sprinkles in a steady string of educational tidbits, among his ramblings. My guess is a mix of intoxication & the wiles of those Asian women he’s always touting. 🙂
This is not the time or place to get into censorship. If you have qualms, send them directly to Warren.
Whew! Above makes me proud to be American. Let’s hope our country moves fourth with enough economic sense to stay out of such messes!
Chris, you might be best served by marrying into asia, with a mandarin speaking mate, even that billionaire Zuckerberg thinks so 😉 If you can’t beat em, join em. But the US government is placing huge restrictions on your freedom to marry mandarin speaking foreigners, this enslavement must not stand!
Some video of Warren in Italy.
greece need only print a $ trillion dollar bill and mail it over to germany…keep the change.
the Euro is nothing more than a made up banking cartel printing pieces of paper.
warren mosler’s myths only work because he is taking about exchanges pieces of paper, that have nothing to do with real money.
not bad! (I think you meant greece print euro?)