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The European crisis and policy responses: an assessment

Euro Crisis and policy responses: an assessment

A (Post-) Keynesian perspective

European crisis and policy responses: an assessment

Policy responses: target status

  • institutional setting of the EZB
  • stabilizing wages + reorganizing labor markets
  • back to regional policies: decrease imports
  • abandon the SGP
  • coordinated expansionary fiscal and monetary policy
  • world financial order with fixed exchange rates

(Keynes 1942: international currency)

  • stable transfer of money

A Post- Keynesian perspective

  • growth rate compatible with a balanced national current account

European crisis and policy responses: an assessment

Overview

A Post-Keynesian perspective

1. Central bank

  • consequence
  • most serious crisis since 1999
  • public debt - debt crisis
  • great recession
  • rescue measures
  • EU member countries
  • IMF
  • revealed flaws - economic policy framework
  • incomplete institutional architecture of EMU
  • should focus on unemployment in the short run
  • aim a monetary policy focusing on low interest rates

  • regulation and supervision of

financial markets

  • avoid credit-financed bubbles

European crisis and policy responses: an assessment

European crisis and policy responses: an assessment

A (Post-) Keynesian perspective

2. income and wage policies

3. fiscal policies

  • responsibility for real stabilization

+ full employment

+ equal distribution of disposable income

  • balanced current account government deficits
  • government dept supplies a save haven for private saving
  • taxation depending on income
  • stabilization through fiscal income and wage policies
  • nominal wages should grow according to growth of labor productivity
  • strong labor unions

+ government involvement

  • no deregulation
  • no flexibilization

European crisis and policy responses: an assessment

Overview

today:

still paradigm

  • stability and growth pact

  • public deficits and debt

  • competitiveness

  • recovery?

Table of content

Thank you for your attention

Questions?

1. The European crisis

1.1. overview

1.2. phases

1.3. reasons and consequences

2. Policy responses

2.1. current status

2.2. target status:

A (Post-) Keynsian perspective

3. Conclusion

European crisis and policy responses: an assessment

Conclusion

  • Government should have prevented the crisis by investing and realize earlier
  • cutting off has been the wrong way
  • Union makes policy more difficult, e.g. interest rates

- Gap of the member countries

- competitiveness

  • fiscal austerity could not reduce budget deficits
  • surplus countries or ECB should have guaranteed for public debt
  • ...

The European crisis and policy responses: an assessment

Phases

bonds increased for Portugal (2010/2011) + Spain (in 2012)

got help by european rescue package

GIPS

European crisis and policy responses: an assessment

Policy responses: current status

economic policy framework (EU):

1. full transfer of competence to the Community

level for monetary policy

2. rates-based coordination for fiscal policy

3. "soft" coordination for other economic policies

European crisis and policy responses: an assessment

Policy responses: current status

European crisis and policy responses: an assessment

Policy responses: current status

3. Structural reforms:

2. Fiscal policy:

1. Monetary policy:

ECB:

  • inflation targeting - below 2 %
  • short term interest rate - instrument
  • no intervening in financial markets
  • strongly limited by the SGP
  • fiscal consolidation (fusion)
  • high deficit high inflationary pressure
  • fiscal policy plays hardly a role
  • back to national legislation
  • austerity measures
  • deregulation of labor-, product and financial markets
  • economic adjustment requires removal of institutional barriers
  • internal devaluation
  • should bring back growth

The European crisis and policy responses: an assessment

Phases

beginning of 2010: prevent end of the Euro

+ Greek government default

Okt. 2010: Irish government bonds

Nov. 2010: help of the Euro rescue fond

European crisis and policy responses: an assessment

Reasons and consequences

Reason and consequences

  • failure of the Stability and Growth Pact (SGP)
  • EMU = European monetary Union
  • panic
  • speculation motive
  • ask for external help - Troika
  • economic and social costs enormous
  • one lost decade
  • government bonds of Euro area member countries (debts)
  • Private consumption boom
  • Imbalance of current account
  • real estate bubbles high inflation rate (GIPS)

Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective

The Economic crisis and policy responses: an assessment

Reason and consequences

current account imbalance:

interconnection of public-, private- and foreign sector:

public sector balance + private sector balance + foreign sector balance = 0

one sector cannot run a surplus without affecting the other sectors of exactly the same magnitude in the opposite way

Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective

European crisis and policy responses: an assessment

Phases

start of the global financial Crisis in 2007:

- globalization of finance

- easy credit conditions

- housing bubble

2009 European dept crisis started

Greece and Irland

Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective

European crisis and policy responses: an assessment

References

Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynsian Perspective, in: Hans-Böckler-Stiftung (Hrg.), in: Institut für Makroökonomie und Konjunkturforschung, Düsseldorf

Dodig, Nina/ Herr, Hansjörg (2014): EU policies adressing current account imbalances in the EMU: an assessment, in: Financialization, Economy, Society and Sustainable development – Large Collaborative Project, Social Sciences and Humanities

Hein, Eckhard/ Detzer, Daniel (2014): Coping with imbalances in the Euro Area: Policy alternitives addressing divergences and disparities between member countries, in: FESSUD - Financialisation, Economy, Society and Sustanable Development

European crisis and policy responses: an assessment

References

Images:

Hein, Eckhard/ Truger, Achim/ Treek, Till van (2011): The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective

dumonde.com.au, download 3.01.2015

chicken.ie, download 3.01.2015

united-states-flag.com, download 3.01.2015

http://www.europarl.europa.eu/brussels/website/content/modul_02/abb_ezbeuro02.html, download 4.01.2015

shop.labour.org.uk, download 3.01.2015

http://de.wikipedia.org/wiki/Hamburger_Hafen, download 4.01.2015

http://ceo.ca/wp-content/uploads/2014/04/7022230-3d-illustration-of-euro-crashed-european-crisis-concept.jpg download 02.01.2015

http://www.uio.no/english/research/interfaculty-research-areas/democracy/bilder/eurocrisis.jpg, download 30.01.2015

http://www.marxist.com/images/stories/europe/europecrisis.jpg, download 30.01.2015

http://mmmglobal.org/wp-content/uploads/9414.jpg, download 30.01.2015

http://i.telegraph.co.uk/multimedia/archive/02241/euro_2241006b.jpg, download 30.01.2015

http://foreignpolicyblogs.com/wp-content/uploads/domino.jpg, download 30.01.2015

https://www.singularityweblog.com/wp-content/uploads/2014/11/John-Maynard-Keynes.jpg, download 30.01.2015

by Lola Attenberger (444802) and Igor Condric (444640)

Macroeconomics (200392),

Nina Dodig

Winter term 2014/2015

Hochschule für Wirtschaft und Recht Berlin

(Berlin School of Economics and Law)

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