Monthly Archives: February 2010

If all the economists in the world were laid end to end, they would not reach a conclusion. The “battle of the letters” – two letters in the FT, from Lord Skidelsky and others and Lord Layard and others, replying to a letter in the Sunday Times from Professor Tim Besley and others – brings this hoary joke to mind.

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Anybody who looks carefully at the world economy will recognise that a degree of monetary and fiscal stimulus unprecedented in peacetime is all that is prodding it along, not only in high-income countries, but also in big emerging ones. The conventional wisdom is that it will also be possible to manage a smooth exit. Nothing seems less likely. So let us consider the endgame, instead.

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In Friday’s FT, more than 60 leading economists back the decision of Alistair Darling, UK finance minister, to delay spending cuts until 2011. In two letters, they argue that (1) a sharp shock now would be dangerous; and (2) the first priority must be to restore robust growth.

Rachel Lomax, Lord Skidelsky, Brad DeLong and Joseph Stiglitz are among those to have co-signed the letters. 

By Laurence Kotlikoff

Greece is being victimised by its use of the euro. Prices and wages within Greece are too high and can’t readily be adjusted downward.  Were the country using its own currency, it could simply devalue.” This, together with profligate government spending, is the generally accepted explanation for the run on Greek bonds. 

Niall Ferguson is not given to understatement. So I was not surprised by the claim last week that the US will face a Greek crisis. I promptly dismissed this as hysteria. Like many other high-income countries, the US is indeed walking a fiscal tightrope. But the dangers are excessive looseness in the long run and excessive tightness in the short run. It is a dilemma of which Prof Ferguson seems unaware.

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By Arminio Fraga

Greece and the EU face a momentous challenge. At stake are Greece’s future and, to some extent, the future of the EU itself. It is obvious that a very large economic adjustment will have to be at the core of any durable solution to the crisis. It also seems clear that the required adjustment will demand time and external support to be viable. Greece’s situation is dramatic but it is by no means the only such fiscal challenge the region, or the world, now faces. Some tough decisions are going to have to be made in the near future. Here a bit of history can be enlightening. 

From the FT:
The political constraints of the eurozone Wolfgang Münchau
Why we should not fear the spectre of deflation Edward Gottesman
Scapegoating will not stop another crisis John Cassidy
Japan: it’s not what you say it’s how you get there FT Alphaville
Central bank trendwatch: expanding remits Money Supply blog

From elsewhere:
Goldman goes rogue – special European audit to follow Baseline Scenario
Greece is more like U.S. than people think Seeking Alpha
Premature exit Paul Krugman
Off the cliff and back? Credit conditions and international trade during the global financial crisis Vox

The bogeyman of a hung parliament is being used to terrify British voters. What is needed, it is argued, is a government with a strong majority, to rescue the UK from the threat of national bankruptcy. This is nonsense. The UK does not face national bankruptcy and, if it did, would not need strong single party government to save it. Has everybody forgotten that in the gravest crisis ever faced by the UK, Winston Churchill governed with a coalition? Why is the present crisis so very different? So poorly has single-party despotism governed the UK that I would welcome a coalition or, at worst, a minority government.

No serious person denies that the country confronts a huge fiscal challenge. Among those serious people are, of course, the leadership of the Liberal Democrats. I cannot be the only person who believes that Vince Cable, the party’s shadow chancellor, is far better qualified to address this challenge than any current member of the Conservative front bench. Indeed, the latter has blown worryingly hot and cold over its elusive plans for fiscal stringency. 

By Chris Giles, the FT’s economics editor. This post was first published on the FT’s Money Supply blog.

Three wonderful ironies stand out from the tentative eurozone plan to back Greece in its hour of need. The Eurogroup’s leaders have agreed to pressure Greece to shore up its public finances, use International Monetary Fund expertise to help set the framework for reducing borrowing, but back Greece with an offer of emergency funds if it required liquidity and could not borrow in the markets. Socialist EU leaders issued a statement last night, talking about “a last-resort mechanism of financial support, coupling lending by private banks with a guarantee to be provided by eurozone members” 

By Tony Barber, the FT’s Brussels bureau chief. This post was first published on the FT’s Brussels blog.

Today’s European Union summit in Brussels will set out the framework for a financial rescue operation for Greece. This much is clear is from various briefings being given by officials from countries as varied as Austria, Lithuania, Poland and Spain.  But financial markets will have to wait until next week to see the full details of the plan.