[p2p-research] Fwd: Open letter to European policymakers: The Greek crisis is a European crisis and needs European solutions

[Peter Mazsa]

On 30 April 2010 13:12, Michel Bauwens <michelsub2004 at gmail.com> wrote:
> ---------- Forwarded message ----------
> From: Dante-Gabryell Monson <dante.monson at gmail.com>
> Date: Thu, Apr 29, 2010 at 9:28 PM
> Subject: Open letter to European policymakers: The Greek crisis is a
> European crisis and needs European solutions
> To: fyeg_green_economy_wg at listen.jpberlin.de
> Cc: Joel Wardenga <joelwardenga at gmx.de>, Laura Appeltshauser
> <laura.appeltshauser at gruene-jugend.de>, Lívia Magdošková
> <magdoskova at yahoo.com>, Rowaa ElHabashy <rowaa.elhabashy at yahoo.co.uk>
>
>
> Although views and proposed solutions in this letter may not
> fundamentally re-question current mainstream economic systems,
> the following open letter may be worth reading...
> Perhaps someone on this list can provide a better decryption of the
> situation, and of the issues and suggestions ETUI points at through this
> letter ?

Better description:

"The underlying problem is the rule for printing money:  in the
eurozone, any government can finance itself by issuing bonds directly
(or indirectly) to commercial banks, and then having those banks
“repo” them (i.e., borrow using these bonds as collateral) at the ECB
in return for fresh euros.  The commercial banks make a profit because
the ECB charges them very little for those loans, while the
governments get the money – and can thus finance larger budget
deficits.  The problem is that eventually that government has to pay
back its debt or, more modestly, at least stabilize its public debt
levels.

This same structure directly distorts the incentives of commercial
banks:  they have a backstop at the ECB, which is the “lender of last
resort”; and the ECB and European Union (EU) put a great deal of
pressure on each nation to bail out commercial banks in trouble.  When
a country joins the eurozone, its banks win access to a large amount
of cheap financing, along with the expectation they will be bailed out
when they make mistakes.  This, in turn, enables the banks to greatly
expand their balance sheets, ploughing into domestic real estate,
overseas expansion, or crazy junk products issued by Goldman Sachs.
Just think of Ireland and Spain, where the banks took on massive loans
that are now sinking the country."
http://baselinescenario.com/2010/04/29/to-save-the-eurozone-1-trillion-european-central-bank-reform-and-a-new-head-for-the-imf

+

Better (symptomatic) treatment:

"I think what is needed is for every deficit-plagued government to
lower public sector salaries by ten percent until the crisis blows
over.

The worst thing that could happen is that cutting wages could reduce
aggregate demand through Keynesian channels. But gosh, look at some of
the alternatives: sovereign defaults, bank runs, cuts in public sector
jobs? A cut in public sector pay is probably the least unpalatable
option." http://econlog.econlib.org/archives/2010/04/the_best_policy_1.html

P.


> According to this open letter from ETUI ( European Trade Union Institute ),
> as far as I understand, they bring attention to
> "wage and price divergences which are not sustainable within a
> monetary union where exchange-rate adjustments are no longer possible",
> saying that "The problem is symmetrical and the solution
> must be as well."
> Cordially, Dante
> pdf:
> http://www.etui.org/en/Media/Files/Open-letter-to-European-policymakers-The-Greek-crisis-is-a-European-crisis-and-needs-European-solutions/Read-the-open-letter
> http://www.etui.org/en/Media/Files/Open-letter-to-European-policymakers-The-Greek-crisis-is-a-European-crisis-and-needs-European-solutions
> excerpts:
> "The problem is symmetrical and the solution
> must be as well."
> "Such wage and price divergences are not sustainable within a
> monetary union where exchange-rate adjustments are no longer possible. But
> this
> requires an adjustment from both ends. Wages and prices in Greece and other
> countries
> need to fall in relative terms, but they must increase faster in Germany,
> whose aggressive
> wage moderation policies are deflationary, export unemployment and threaten
> to explode
> the monetary union. This is the only way to rebalance the euro area while
> avoiding the
> huge risk of a deflationary spiral."
> "it is in Europe’s vital interests to resolve the Greek crisis on the basis
> of
> rising incomes across the continent and to put in place the needed machinery
> to cope with
> competitive and fiscal imbalances in the future. The future of the euro area
> as a whole is
> at stake. There is a serious risk of a falling Greek domino knocking over a
> series of other
> countries. Portugal and other countries now stand where Greece was a few
> months ago.
> The economic, political and social costs would be enormous. Has Europe
> learnt nothing
> from the 1920s when Germany was, in many ways, in a similar situation to
> Greece
> today? Prevented from raising exports to service its foreign debt
> (reparations) by
> mercantilist policies, Germany embarked on a disastrous course of deflation
> and
> depression which paved the way for the horrors that followed."
> "The Greek crisis is a chance to drive European integration forward to the
> benefit of all
> Europe’s citizens. But current policies, based on misperceptions of economic
> interlinkages and short-sighted and erroneous views on ‘national’ interests,
> threaten to
> destroy the monetary union, set back European integration and imperil its
> economic and
> political future. EMU simply cannot go on like this. We call on European
> policymakers
> to find European solutions that serve the interest of all Europe’s
> citizens."
>
>
> ---------- Forwarded message ----------
> From:
> Date: 2010/4/29
> Subject: [gtm] Crise grecque avec réflexions sur le rôle de la BCE et taux
> d'intérêts
> To: "gtmonnaie at gtmonnaie.be" <gtmonnaie at gtmonnaie.be>
>
>
> Bonjour,
>
> Open letter to European policymakers: The Greek crisis is a European crisis
> and needs European solutions
>
> http://www.etui.org/fr/Media/Files/Open-letter-to-European-policymakers-The-Greek-crisis-is-a-European-crisis-and-needs-European-solutions
>
> Cette lettre de 3 pages de l’ETUI (European Trade Unions Institute) donne la
> lecture de cet organisme sur la crise grecque, ses origines et les remèdes,
> avec des réflexions sur la BCE et les taux d’intérêts.
>
> Franco
>
>
>
> --
> Work: http://en.wikipedia.org/wiki/Dhurakij_Pundit_University - Think thank:
> http://www.asianforesightinstitute.org/index.php/eng/The-AFI
>
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