Viewed in conventional liberal terms, the EU is an innovative political project. Like other modern polities it has economic policy objectives - price stability, growth, full employment etc - which it realizes through a suite of instruments - monetary, fiscal, industrial, regulatory - framed by an institutional structure i.e. an independent central bank, national Treasuries with budget rules etc. The EU is a highly original political project and European Monetary Union - the Euro - is a work in progress, so getting the balance between fiscal, monetary and regulatory structures right, is tricky. In
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.
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.
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.
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.
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.
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.
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