The Harsh Couch - 2015.06.30 Don't Touch Aunty

#1

Journalism is printing what someone else does not want printed: everything else is public relations. - Orwell

This is a companion discussion topic for the original entry at http://theharshcouch.com/thc/2015-06-30/
#2

For the likely Grexit discussion tomorrow - Piketty points out Germany doesn’t have a good track record for paying its debts: https://medium.com/@gavinschalliol/thomas-piketty-germany-has-never-repaid-7b5e7add6fff

That said, every default is a different story and I don’t feel a lot of sympathy for the Greeks. I also don’t see many people asking who is left bearing the cost of any bail out. People usually point to “banks”, but the reality is that the banks who have historically lent money to the Greeks were lending their depositors’ and investors’ money, which often means pension funds.

Anyway, China is the bigger problem, yet fills me full of schadenfreude.

The Chinese stock market’s plunge “is probably the most public and obvious instance where the government’s omnipotence has been challenged,” said Victor Shih, an associate professor at the University of California, San Diego, who studies the politics of financial policy-making in China. “I think the last couple of weeks really showed that, no, they do not have the ability to make anything happen.”

#3

Milton Friedman on the Eurozone below. Not a man I’d normally want to agree with, but he called the problems with the one currency Eurozone fairly well. It was a case a politics over economics.

I recall the Guardian and other left-leaning UK press attacking the anti-Euro British as being political thought criminal deviants (isolationist, against the tide of European communalism) rather than attacking them for their economics.

In many ways, the anti-Eurozone guys were right. Sometimes even for the right reasons.

Milton:

By contrast, Europe’s common market exemplifies a situation that is unfavorable to a common currency. It is composed of separate nations, whose residents speak different languages, have different customs, and have far greater loyalty and attachment to their own country than to the common market or to the idea of “Europe.” Despite being a free trade area, goods move less freely than in the United States, and so does capital.

The European Commission based in Brussels, indeed, spends a small fraction of the total spent by governments in the member countries. They, not the European Union’s bureaucracies, are the important political entities. Moreover, regulation of industrial and employment practices is more extensive than in the United States, and differs far more from country to country than from American state to American state. As a result, wages and prices in Europe are more rigid, and labor less mobile. In those circumstances, flexible exchange rates provide an extremely useful adjustment mechanism.

If one country is affected by negative shocks that call for, say, lower wages relative to other countries, that can be achieved by a change in one price, the exchange rate, rather than by requiring changes in thousands on thousands of separate wage rates, or the emigration of labor.

The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe. I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues. Political unity can pave the way for monetary unity. Monetary unity imposed under unfavorable conditions will prove a barrier to the achievement of political unity.

#4

And from Hemlock:

The Euro was rooted in deranged megalomania. Euro-visionary elites salivated at the idea that their odd assortment of small-to-medium nation-states could be merged into a new, social-democratic version of the USA, so they could strut around on the world stage like American leaders, except sophisticated and pacifist. Since the populations of France, Germany, Italy, the Netherlands, etc irritatingly insisted on remaining sovereign, the utopians had to try constructing the new country backwards, starting with a flag (the easy bit) and then forcing them all to adopt the same currency and thus monetary policy. They are now locked in and uncompetitive with a voraciously mercantilist Germany, too ashamed to admit that it was a crazy idea.