On the last day of 2011, a headline in The Wall Street Journal read: “Spain Misses Deficit Target, Sets Cuts.” The cruel forces of poor economic logic were at work to welcome in the new year. The European Union has become a vicious circle of burgeoning debt leading to radical austerity measures, which in turn further weaken economic conditions and result in calls for still more damaging cuts in government spending and higher taxes. The European debt crisis began with Greece, and that nation remains the European Union’s most stricken economy. But it has spread inexorably to Ireland, Portugal, Italy, and Spain, and even threatens France and possibly the UK. It need not have done so. Rarely do we get so stark an example of bad—arguably even perverse—economic thinking in action.
Facts and Values Are Entangled: Deal with It
Triple Crisis blogger Sanjay Reddy was recently interviewed by Perry Mehrling of the Institute for New Economic Thinking (INET) on why economists should explicitly acknowledge the normative values underlying their theories and models.
Mission Creep: International Investment Agreements and Sovereign Debt Restructuring
Triple Crisis blogger Kevin P. Gallagher published the following article in the International Institute for Sustainable Development’s (IISD) Investment Treaty News on why international investment agreements (IIAs) should not be used as a way to circumvent debt restructuring.
As members of the Eurozone are now acutely aware, the lack of a sovereign debt restructuring regime is one of the most glaring gaps in the international financial architecture. That said, this summer’s decision by a tribunal of the International Centre for Settlement of Investment Disputes (ICSID), which grants a bilateral investment treaty (BIT) jurisdiction over Argentina’s restructuring of its sovereign debt in the wake of its 2001 financial crisis, shows that a de-facto regime may be arising whereby international investment agreements (IIAs) can serve as a way for disgruntled investors to circumvent debt restructuring. This amounts to mission creep on the part of IIAs. Creeping into such territory is too much to take on for the world of IIAs. Sovereign debt restructuring should be left to national governments and international financial and monetary authorities.
Be Prepared – a good motto for 2012
At this time 12 months ago, this column had highlighted how the dying year 2010 could be labeled the year of natural calamities, and predicted more on the way.
Sure enough, the year that has just passed witnessed even worse disasters. If 2010 was marked by the Haiti earthquake, 2011 surpassed that in impact (if not in deaths) by the Fukushima triple tragedy of earthquake, tsunami and nuclear accident.
But Fukushima was only the worst of the calamities that included hurricanes in Central and Latin America, drought in parts of Africa, massive floods in Thailand and elsewhere, and many typhoons and storms in the Philippines.
What Happened to Regulating the Banks?
Triple Crisis blogger Gerald Epstein was recently interviewed by the Real News Network on why stronger banking regulation should focus on eliminating conflicts of interest and ensuring banks function to support the real economy.
Greece – no cheap and easy way out
Almost two years into dealing with the sovereign debt crisis in the Euro area, the problems in Greece are far from being solved. In fact, the free fall of the Greek economy has made the troika’s plans obsolete. Once again the assumptions about GDP development have proven to be overly optimistic. The economy will probably shrink more than the assumed 3%, current estimates actually see the recession as being twice as strong in 2012 than assumed. Given rising internal tensions, growing protests against further reforms, a disorderly default of the Greek state can no longer be excluded. Greece is encountering increasing pressure to fulfill the conditionality attached to the loans provided by the EU and the IMF. The scenario that the troika of IMF, European Commission and European Central Bank actually does not pay out the next tranche of credit in order to keep up pressure on the government to reform and to consolidate is no longer unrealistic.
The ‘Fiscal Compact’ Has Not Solved the Euro Crisis
Philip Arestis and Malcolm Sawyer
The Triple Crisis Blog is pleased to welcome Philip Arestis and Malcolm Sawyer as regular contributors. Philip Arestis is the Director of Research at the Cambridge Centre for Economic & Public Policy and Senior Fellow in the Department of Land Economy at the University of Cambridge, UK, and Professor of Economics at the University of the Basque Country, Spain. Malcolm Sawyer is Professor of Economics at the University of Leeds, UK.
In a recent post (19th December 2011) we argue that the recent ‘fiscal compact’ agreed upon by the European Union (EU)/European Monetary Union (EMU) at their meeting of 8th/9th December 2011 would not deliver. Now that further details have emerged, it is clear that the situation is even far worse than what appeared to be in the first instance. It is now clear that neither the governments of the EMU countries nor the European Central Bank (ECB) have committed themselves to doing enough let alone satisfactorily. The ECB is not prepared to perform the proper role of any central bank, namely the ‘lender of last resort’ function. EMU governments have not made progress on the ‘eurobond’ idea, whereby the EMU members would share the troubled economies burden of debt.
Spotlight G20: Why a Financial Transaction Tax?
Triple Crisis guest blogger Sarah Anderson of the Institute for Policy Studies was recently interviewed by the Real News Network on the likelihood an international agreement on financial transaction taxes in 2012.
China’s coming crises
With economic crashes and ecological calamities so prevalent in 2011, concluding with a do-little November G20 meeting in Cannes and a do-nothing December climate summit in Durban, January has opened with intense fear of eurozone deterioration. In this uncertain context loom the two most potent forces shaping the period ahead: China’s capital accumulation process and class struggle.
Because of the country’s uneven and combined development, within an extraordinary boom we can see the beginnings of a potentially world-scale bust, plus prodigious socioeconomic battles from below alongside brutal attacks on the environment such as coal-fired power and the Three Gorges Dam (notwithstanding exceptional ‘green economy’ advances).
China on the verge?
It has become increasingly common to suggest that on top of the European debacle and the sluggish recovery in the United States, China might be on the verge of a collapse, and with it the last bastion of economic growth in the world economy would also be gone. Not only the center is stagnant, but also the periphery of the global economy is very fragile. But the probability of a Chinese slowdown is greatly exaggerated.
Paul Krugman, who has been correct about the need for fiscal expansion in the United States, and about the European Central Bank (ECB) mismanagement of the Greek crisis, for example, has suggested that China is in the middle of a housing bubble that can burst at any time (see also Jayati Ghosh and C. P. Chandrasekhar here for a similar, but broader view of the dangers in 2012). This view insinuates that growth in China is fundamentally dependent on domestic demand, but that the sources of the expansion are fragile. It, further, suggests that China now looks very similar to the US before the Lehman Brothers crisis in September 2008.