Wednesday, October 30, 2013

Commission Slowly Realizing That The Commission Failed Miserably?

When one sees a question in the heading, the answer is often: "No!" Just look at the Fox Nation homepage which often asks questions, that have little to nothing to do with the article below. But in this case the answer seems to be: "Well, kinda..."

The European Commission published a study by Jan in 't Veld which at least acknowledges the obvious:

Successive consolidations in recent years have depressed growth in the euro area.
Of course this study does not necessarily reflect any actual understanding of this fact by the views of the Commission. On the plus side we also see that at least this one person in theCommission has realized that stimulus in the core would have improved the situation for the program countries.

But then there is a lot of stuff and I mean stuff:
The GDP impact could be considerably smaller if credibility is achieved earlier[..].
What is that supposed to mean? The Greek economy is now credibly destroyed (only wars can to a better job at destroying countries), the unemployment rates are at a credibly unacceptable level; and the debt to GDP ratios are credibly and steadily increasing.If markets had anticipated just how stupid austerity at the zero lower bound in a depressed economy is then things would have most likely been worse.

He goes on to complain that markets are stupid not forward looking enough, and he feels that the self-defeating austerity policies (WHICH WAS WHAT THE PAPER WAS ABOUT) should have immediately reduced the spreads. Why? Long run! Everything was better in the past and everything will always be better in the long run. There is more:
[A] slower pace of consolidation could have raised general fears of sovereign default.
 Really? And is a default for Greece now less likely? Is a default in Portugal more likely at 94 percent than it is today at over 120 percent debt to GDP? Is a eurozone breakup now less likely than it was in 2010?

The paper had a chance of actually tackling the issues. It never did. Yes a stimulus program in the core would have helped. No, the "reforms" have not improved the program countries; and the long run is completely irrelevant as long as there is still a significant risk of the whole eurozone falling apart in the medium term. Not only did the EC help in the destruction of the welfare state, the economists there are just in the business of making excuses. If only people would learn faster that unaffordable health care, mass unemployment, and increased taxes are credible signs of lower taxes in the future, and that sky-rocketing debt to GDP levels show that future debt will be lower, then we would see the confidence fairy appear, and make everything fine in the long run. Don't believe me? Then give me another way to interpret the following sentence:
Fully credible consolidations can reverse expectations of increasing debt and rising future tax liabilities and, if anticipated, such confidence effects could significantly reduce the impact multiplier.
As I said the EC seems to start to understand that the policies did not work. But, this isn't due to them just being absolutely awful, this is due to markets learning slowly that these policies are in fact "credible" and therefore should induce "confidence".

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