As an economist I make a pretty good retired English professor, but if I may say so, I find that your analysis begins at a high level of abstraction & ends with a plunge into details without ever making a strong argument for the former causing the latter. You could be quite right about the superiority of your analysis over that of the conventional wisdom, but I don't think you've made your case.
As I understand what he's saying, the CW analysis is that the inadequacy of the EU's institutions explains its current economic disarray. For example, the EU has a central bank but no EU-wide fiscal policy or government. Tooze is looking for a broader, more abstract explanation than that, though I'm not sure what he's proposing, because I don't see the connection between the first half & second half of his post.
With a single monetary policy, the disparities in fiscal policies were likely to follow the lead of the strongest partners, which I think was largely the rhetorical point of the approach taken by the Troika. They were told to be more like Germany, to sweep their own porches by Merkel, and Werner-Sinn repeated the claim that the EZ was not a "transfer union" whenever he had the chance. The lesson here was supposed to be that the most damaged economies had only themselves to blame. Schauble said of Greece that no one put a gun to their heads to force them to take German money.
But of course the EZ is a transfer union, as the bailouts show. A very, very large number of Eurozone citizens are now poorer than they were in order to save large institutional investors in Germany and France.
You're right that the CW is that the EZ is weak because its institutions are weak - that they lack and EU-wide fiscal policy. But I think this overlooks the means by which fiscal policy making was enforced by the ECB and the Troika.
I think that might've been possible if the institutions themselves were more representative of the EZ as a whole. Germany dominated the design and early culture of the ECB, used it to defray their own costs, and to spread toxic debt to otherwise responsible investors through the ECB key. The Troika itself was unelected and actually illegitimate, having no legally defined powers yet making sweeping changes to tens of millions of lives - at least through the critical phase of its management of the crisis.
In the end however, the EZ and even the EU aren't about representative democracy. They're about becoming more like Germany economically, and a part of the broader European project. That, at least, is the perspective I encountered most often among the many Greeks I spoke to in the midst of the crisis. Their admiration for Germany's culture and institutions led them to accept responsibility for their plight - responsibility which couldn't possibly be theirs except as minor player - in the hope that they'd trade what amounted to a financial catastrophe for a political windfall.
The only institution I think might've made a difference was the press, but it was uniform, as far as I could tell, throughout the continent as well as in the UK. It seems its as hard to get a thinking man to understand something as it for a working man, when his paycheck depends on not understanding it.
Tooze makes a cogent and concise analysis, but no mention of the quantom leap executed by the EU and its 27 states in establishing viable social democracies. The social partnerships which abide in many of the countries between state, business and labor interests are anchored in democratic process and participation, once removed from the epitath of state capitalism. Despite the ungainly arrangements between federal EU, state interests and the ECB, Europe has managed to concoct a new political economy that could go by the name of social market capitalism. The economic disarray signifies institutional and structural growing pains that the relatively youthful EU is just going to have to work out. As Tooze points out, whether Europe will adopt more streamlined American fiscal and monetary procedures and policies, or whether it will work out different agreements and treaties, is still an open questio
Stepping further back and looking at the polycrisis, there is a fundamental question about the role of capital and it's expectations of continued privileged position in terms of rates of returns and power. Pick up on the Piketty analysis, and the questions are also about the growing economic disparities that are inherent in the current capitalist system. Then the observation can be that the rates of return in the US are too high, rather than being too low in Europe.
The high rates of return reflect qualities liked by investors but not policies that protect consumers and sovereign currency (dollar) security. Higher corporate taxes and reduction of “junk” fees will be partial solutions. Increased anti-monopoly enforcement and eliminating corporate personages and political contributions will also help. In this I’m not suggesting a wholesale reduction of capitalist structures, merely a more balanced approach to all sides of the equation.
At the sovereign level, corporate taxes have been massively reduced for about 50 years and the debt balances reflect that. It will take some time to bring down the debt levels, but it should not be at the expense of the social programs or protecting the dollar. The Fed will have a delicate balancing act until some or all of these things can be implemented.
In October 2009 the Greek government revealed its debt and deficits were significantly higher than previously reported, initiating Greece's broader financial crisis. In November 2009, less than a month later, a Greek bond issuance was oversold, meaning there was more demand than supply. German investors were heavily represented among the buyers. Between 2000 and 2010, German labor costs rose by roughly 12%, and by roughly 66% in Greece.
These massive capital flow imbalances were facilitated by banks, but not caused by them. What caused them were the German Hartz labor reforms, ECB interest rates following Germany's needs rather than the EZ as a whole, and ultimately the design of the Euro itself. With wage growth in Germany artificially repressed, low interest rates fueling economic growth in already overheated economies outside Germany, and a German export market which substantially benefitted from a significant decrease in its real effective exchange rate, the "golden age" of the EZ was in fact an engine designed to promote the economic interests of Germany at the expense of its trade partners, particularly the weakest partners.
Banks did what they were more or less supposed to do, which is to transfer capital from low growth to high growth investments. There were few investment opportunities hotter than Greece, with its relatively high premia on sovereign debt, growing import market, infrastructure needs, and valuable real estate. Sales of bonds boomed, capital flowed in, wages rose, Greeks bought more BMWs sending that capital back to Germany, which subsequently reinvested it Greek bonds and other investments. What could go wrong?
We all know the answer to that, of course. It was the typical boom and bust, with Greeks living far out of their means, costing European and German banks billions in bailouts.
But of course those bailouts were a feature, not a bug. From the very beginning, when Greece was allowed to join the EZ through the Maastricht criteria that allowed Italy to join (and without which there would be no EZ), German (and French and other) investors saw the huge spread in bond yields and with it, free money. The only risk was blowing up the Greek economy, and losing their money as Greeks repudiated the debt. But now, having given up authority over its monetary policy to the ECB, Greece couldn't default - not without taking Germany with it. So the ECB wouldn't allow that. The bailouts were for the investors, not the Greeks. And these investors were exactly right.
The problem with the EZ is not bad banks. That's a symptom. The problem is politics.
Your description of the nature of the ECB is startling to me, not because it might be true now, but because it most certainly wasn't true during the era of the Troika.
Thanks for the link. Much as it pains me to say it, I think the Europeans could have done with a bit more neoliberalism; what they actually got was a strong dose of "ordoliberalism", the German approach stressing "austerity for thee and massive trade incentives for me." Or something like that. The Anglo-American neoliberalism still relies on a bedrock of Keynesian macro-economics, which would've done the majority of EZ citizens a world of good. Mark Blyth (https://www.amazon.com/Austerity-History-Dangerous-Mark-Blyth/dp/019982830X) has been good on this.
I look forward to reading "Eurozone Dystopia" - thanks!
Yes, I read Blyth's "Austerity" a few years back -- great stuff. And hell yes, the Euro zone has a dreadful history of insufficiency on the fiscal front, courtesy of the "schwarz null" and hagiography of the mythical schwäbische Hausfrau ...
I studied political economics as a graduate History major during the 2008 global crisis, and although it tends to seem to offer reasons for all that is wrong with the world, it is a subject with a language that does not allow easy access to the layperson. All I can intuit on a first read through is that Professor Tooze is asking the reader a rhetorical question: has the experiment failed - or not? It sounds as though he is suggesting that survival depends on doing more of what the banking systems of the U.S. and of France have been able to do. IT is an area of potential improvement. I shall have to re-read a few more times.
Being an educator, the Professor presents graphs and asks his students/readers to put on their critical thinking caps. I personally am forever perplexed at how the economics that underlies politics is dark and hidden to political leaders and citizenries/ populations. I try to slog through a language in which I am very far from fluent for the fun of puzzle solving.
The Global Financial Crisis revealed the fragility of state-capitalism, whether the version is German, French, Italian, or American.
In the American election campaign after the 2007-08 financial meltdown, class clown John McCain was a deer-in-the-headlights on economic policy, but teacher’s pet Barack Obama, who understands and accepts what the late Bob Fitch called the “grim hydraulics of trickle-down economics”, knew what the banksters wanted and he gave it to them: criminal immunity, an effectively interest-free credit line, and continued control of economic policy.
Russia and China are certainly “on the capitalist road”, but it appears that the GFC gave them pause about giving control of economic policy to their finance sectors.
I am sorry. Euro banks are undervalued compared to American ones? Well, good. Perhaps American banks are overvalued compared to Euro ones. We have seen what happens if you let American bankers pursue profits, unchecked. Let's be honest: banks are errand boys for central banks. They get toys from their central bank to execute monetary policy set by central bankers (i.e. governments). If they don't play nice, they get their toys taken away. They should not be in the business of growth and profitability, they should behave like the utilities they are.
As an economist I make a pretty good retired English professor, but if I may say so, I find that your analysis begins at a high level of abstraction & ends with a plunge into details without ever making a strong argument for the former causing the latter. You could be quite right about the superiority of your analysis over that of the conventional wisdom, but I don't think you've made your case.
Agreed.
I'm no economist, so maybe you can help me out here: What, specifically is his "analysis" and what is the "conventional wisdom"? Thanks!
As I understand what he's saying, the CW analysis is that the inadequacy of the EU's institutions explains its current economic disarray. For example, the EU has a central bank but no EU-wide fiscal policy or government. Tooze is looking for a broader, more abstract explanation than that, though I'm not sure what he's proposing, because I don't see the connection between the first half & second half of his post.
With a single monetary policy, the disparities in fiscal policies were likely to follow the lead of the strongest partners, which I think was largely the rhetorical point of the approach taken by the Troika. They were told to be more like Germany, to sweep their own porches by Merkel, and Werner-Sinn repeated the claim that the EZ was not a "transfer union" whenever he had the chance. The lesson here was supposed to be that the most damaged economies had only themselves to blame. Schauble said of Greece that no one put a gun to their heads to force them to take German money.
But of course the EZ is a transfer union, as the bailouts show. A very, very large number of Eurozone citizens are now poorer than they were in order to save large institutional investors in Germany and France.
You're right that the CW is that the EZ is weak because its institutions are weak - that they lack and EU-wide fiscal policy. But I think this overlooks the means by which fiscal policy making was enforced by the ECB and the Troika.
Thank you! That's a great reply to me & Tooze. Do you think that strong institutions would have prevented the rich from sticking to the poor?
I think that might've been possible if the institutions themselves were more representative of the EZ as a whole. Germany dominated the design and early culture of the ECB, used it to defray their own costs, and to spread toxic debt to otherwise responsible investors through the ECB key. The Troika itself was unelected and actually illegitimate, having no legally defined powers yet making sweeping changes to tens of millions of lives - at least through the critical phase of its management of the crisis.
In the end however, the EZ and even the EU aren't about representative democracy. They're about becoming more like Germany economically, and a part of the broader European project. That, at least, is the perspective I encountered most often among the many Greeks I spoke to in the midst of the crisis. Their admiration for Germany's culture and institutions led them to accept responsibility for their plight - responsibility which couldn't possibly be theirs except as minor player - in the hope that they'd trade what amounted to a financial catastrophe for a political windfall.
The only institution I think might've made a difference was the press, but it was uniform, as far as I could tell, throughout the continent as well as in the UK. It seems its as hard to get a thinking man to understand something as it for a working man, when his paycheck depends on not understanding it.
Thanks!
Tooze makes a cogent and concise analysis, but no mention of the quantom leap executed by the EU and its 27 states in establishing viable social democracies. The social partnerships which abide in many of the countries between state, business and labor interests are anchored in democratic process and participation, once removed from the epitath of state capitalism. Despite the ungainly arrangements between federal EU, state interests and the ECB, Europe has managed to concoct a new political economy that could go by the name of social market capitalism. The economic disarray signifies institutional and structural growing pains that the relatively youthful EU is just going to have to work out. As Tooze points out, whether Europe will adopt more streamlined American fiscal and monetary procedures and policies, or whether it will work out different agreements and treaties, is still an open questio
Stepping further back and looking at the polycrisis, there is a fundamental question about the role of capital and it's expectations of continued privileged position in terms of rates of returns and power. Pick up on the Piketty analysis, and the questions are also about the growing economic disparities that are inherent in the current capitalist system. Then the observation can be that the rates of return in the US are too high, rather than being too low in Europe.
The high rates of return reflect qualities liked by investors but not policies that protect consumers and sovereign currency (dollar) security. Higher corporate taxes and reduction of “junk” fees will be partial solutions. Increased anti-monopoly enforcement and eliminating corporate personages and political contributions will also help. In this I’m not suggesting a wholesale reduction of capitalist structures, merely a more balanced approach to all sides of the equation.
At the sovereign level, corporate taxes have been massively reduced for about 50 years and the debt balances reflect that. It will take some time to bring down the debt levels, but it should not be at the expense of the social programs or protecting the dollar. The Fed will have a delicate balancing act until some or all of these things can be implemented.
In October 2009 the Greek government revealed its debt and deficits were significantly higher than previously reported, initiating Greece's broader financial crisis. In November 2009, less than a month later, a Greek bond issuance was oversold, meaning there was more demand than supply. German investors were heavily represented among the buyers. Between 2000 and 2010, German labor costs rose by roughly 12%, and by roughly 66% in Greece.
https://d3fy651gv2fhd3.cloudfront.net/charts/greece-labour-costs@2x.png?s=greecelabcos&v=202312091008V20230410&w=850&h=400&d1=19990126&url2=/germany/labour-costs
These massive capital flow imbalances were facilitated by banks, but not caused by them. What caused them were the German Hartz labor reforms, ECB interest rates following Germany's needs rather than the EZ as a whole, and ultimately the design of the Euro itself. With wage growth in Germany artificially repressed, low interest rates fueling economic growth in already overheated economies outside Germany, and a German export market which substantially benefitted from a significant decrease in its real effective exchange rate, the "golden age" of the EZ was in fact an engine designed to promote the economic interests of Germany at the expense of its trade partners, particularly the weakest partners.
Banks did what they were more or less supposed to do, which is to transfer capital from low growth to high growth investments. There were few investment opportunities hotter than Greece, with its relatively high premia on sovereign debt, growing import market, infrastructure needs, and valuable real estate. Sales of bonds boomed, capital flowed in, wages rose, Greeks bought more BMWs sending that capital back to Germany, which subsequently reinvested it Greek bonds and other investments. What could go wrong?
We all know the answer to that, of course. It was the typical boom and bust, with Greeks living far out of their means, costing European and German banks billions in bailouts.
But of course those bailouts were a feature, not a bug. From the very beginning, when Greece was allowed to join the EZ through the Maastricht criteria that allowed Italy to join (and without which there would be no EZ), German (and French and other) investors saw the huge spread in bond yields and with it, free money. The only risk was blowing up the Greek economy, and losing their money as Greeks repudiated the debt. But now, having given up authority over its monetary policy to the ECB, Greece couldn't default - not without taking Germany with it. So the ECB wouldn't allow that. The bailouts were for the investors, not the Greeks. And these investors were exactly right.
The problem with the EZ is not bad banks. That's a symptom. The problem is politics.
Your description of the nature of the ECB is startling to me, not because it might be true now, but because it most certainly wasn't true during the era of the Troika.
Sounds like "Eurozone Dystopia" ...
https://www.e-elgar.com/shop/usd/eurozone-dystopia-9781784716653.html
Thanks for the link. Much as it pains me to say it, I think the Europeans could have done with a bit more neoliberalism; what they actually got was a strong dose of "ordoliberalism", the German approach stressing "austerity for thee and massive trade incentives for me." Or something like that. The Anglo-American neoliberalism still relies on a bedrock of Keynesian macro-economics, which would've done the majority of EZ citizens a world of good. Mark Blyth (https://www.amazon.com/Austerity-History-Dangerous-Mark-Blyth/dp/019982830X) has been good on this.
I look forward to reading "Eurozone Dystopia" - thanks!
Yes, I read Blyth's "Austerity" a few years back -- great stuff. And hell yes, the Euro zone has a dreadful history of insufficiency on the fiscal front, courtesy of the "schwarz null" and hagiography of the mythical schwäbische Hausfrau ...
I studied political economics as a graduate History major during the 2008 global crisis, and although it tends to seem to offer reasons for all that is wrong with the world, it is a subject with a language that does not allow easy access to the layperson. All I can intuit on a first read through is that Professor Tooze is asking the reader a rhetorical question: has the experiment failed - or not? It sounds as though he is suggesting that survival depends on doing more of what the banking systems of the U.S. and of France have been able to do. IT is an area of potential improvement. I shall have to re-read a few more times.
Being an educator, the Professor presents graphs and asks his students/readers to put on their critical thinking caps. I personally am forever perplexed at how the economics that underlies politics is dark and hidden to political leaders and citizenries/ populations. I try to slog through a language in which I am very far from fluent for the fun of puzzle solving.
The Global Financial Crisis revealed the fragility of state-capitalism, whether the version is German, French, Italian, or American.
In the American election campaign after the 2007-08 financial meltdown, class clown John McCain was a deer-in-the-headlights on economic policy, but teacher’s pet Barack Obama, who understands and accepts what the late Bob Fitch called the “grim hydraulics of trickle-down economics”, knew what the banksters wanted and he gave it to them: criminal immunity, an effectively interest-free credit line, and continued control of economic policy.
Russia and China are certainly “on the capitalist road”, but it appears that the GFC gave them pause about giving control of economic policy to their finance sectors.
I am sorry. Euro banks are undervalued compared to American ones? Well, good. Perhaps American banks are overvalued compared to Euro ones. We have seen what happens if you let American bankers pursue profits, unchecked. Let's be honest: banks are errand boys for central banks. They get toys from their central bank to execute monetary policy set by central bankers (i.e. governments). If they don't play nice, they get their toys taken away. They should not be in the business of growth and profitability, they should behave like the utilities they are.
Please also make the connection with the fact that in all this technobable, the idea of a democratic polity has absolutely no place.
CBs don't really understand the role of collateral in the global eurodollar system. Emergency Report Reveals Truth About The Banking Crisis https://youtu.be/4Dme-OwjA04?si=nz-GKuC4oidITHWQ