Box 1.5: Stand-Alone PDF and Data Spreadsheet

The European Commission has now released a stand-alone PDF of Box 1.5 – it is here.

It has also put the dataset online – it is here.

46 replies on “Box 1.5: Stand-Alone PDF and Data Spreadsheet”

From the document:

“Under rational expectations, this coefficient should be zero.”

I think I know what that means, but would anyone knowledgeable care to unpack it a bit?

From the conclusion:

“For the most vulnerable countries, exposure to financial market pressures means there is no alternative than to pursue consolidation measures. The alternative of rising risk premia and higher borrowing costs would be worse for these countries, and consolidations are needed to restore fiscal positions and put debt projections back on a sustainable path.”

Which is a classic TINA argument. Isn’t the problem precisely that the assumption is that the markets want consolidation, but when the same markets (who are people after all) also note that this comes at a price of loss of growth, unemployment and failure to close the deficit as planned they also do not wish to invest in government bonds. The phrase ‘would be worse’ seems highly speculative here. And, apologies for rambling, of course takes no account of the impact of membership of the Euro itself as part of the additional cost of the ‘risk premia’: contrast with US/UK.

“The size of the multiplier, defined as the change in GDP following a 1% of GDP change in fiscal deficits, depends on the composition of the fiscal
consolidation (or expansion), its persistence and the accompanying monetary and financial conditions, ”

surely the list should also include the competence and ideological rigidity of the policymakers and their general attitude to plutocracy at the time.

@ Gavin Kostick

the Greek tragedy is a great example of the market’s bipolar desire for hard consolidation so long as it doesn’t hurt growth.

Other factors that deserve mentions are the credibility of the policy and how quickly the police are infiltrated by neo fascists.

… what needs to be done to bring an end to the euro crisis.

Let the financial system take its losses; as distinct from dumping the cost on the weakest citizens in the EZ.

As in the ‘counterpoint’ I linked to above, this was the optimum solution ab initio and the IMF now fully recognizes this ‘fact’ – a phenomenon that Colm McCarthy refers to as ‘market discipline’. The main impediments to progressing this solution are (i) the ordo neoliberal ideology of the Germanic sphere of influence; (ii) Article 123 of the Lisbon Treaty preventing the ECB acting now as LOLR, (iii) supine governments captured by the financial elites (incl. the Hibernian).

THE multiplier which matters is the size of the ‘haircut’ on conflated sovereign/financial_system debt or its equivalent printed by the ECB under a state of EZ Emergency.

Just a thought ….

@Gavin Kostick

A forecast of some variable F, call the forecast Fhat, is unbiased relative to a variable X if the expected forecast error is unrelated to X, E[F – Fhat] = bX only for b=0. Rational expectations by forecasters implies unbiased forecasts so that F-Fhat = a +bX + epsilon as a regression has a=b=0 under rational expectations where epsilon is the regression residual variable (unbiased error term).

Management theory was hijacked in the 80s.

We’re still suffering the falloutGood governance went out of the window when the Chicago school’s reductive view of human nature took hold.

This week the City has been congratulating itself on 20 years of UK corporate governance codes. Since the original Cadbury document in 1992, the UK has basked in its role as governance leader, with 70 other countries having followed its example and adopted similar guidelines.

There’s just one problem: is it the right kind of governance? The day the FT carried the story, Incomes Data Services reported that FTSE 100 boardroom pay went up by a median 10% last year, a soaraway trend that the best code in the world has complacently overseen. Nor could it prevent the RBS meltdown, Libor or PPI mis-selling to the tune of £12bn, the biggest rip-off in financial history. It didn’t stop phone-hacking or BP taking short cuts. It has sanctioned wholesale offloading of risk, whether individual (pensions, careers) or collective (global and financial warming) on to society, while rejecting any responsibility of its own except to shareholders.

… management in the 1980s was subject to an ideological hijack by Chicago economics that put at the heart of governance a reductive “economic man” view of human nature needing to be bribed or whipped to do their exclusive job of maximising shareholder returns. Embedded in the codes, these assumptions now have the status of unchallenged truths.

The consequences of the hijack have been momentous. The first was to align managers’ interests not with their own organisations but with financial outsiders – shareholders. That triggered a senior management pay explosion that continues to this day. The second was that managers abandoned their previous policy of retaining and reinvesting profits in favour of large dividend and share buyback payouts to shareholders.
[Read on …. [h/t nakedcapitalism ….

from Yanis Varoufakis

Hanging in quiet desperation is (becoming) the Greek way

[My] blog has a tendency to worship the large picture and to focus on the great issues of the day, with the Euro Crisis as its usual focus. There are times, however, when the small, miniscule picture, some snapshot of one person’s world, offers a stupendously large perspective from which to gather the greater scheme of things. One such snapshot attracted my horrified gaze the other day. It was the image of a disabled 60-year, his corpse dangling from a rocky cliff face in Northern Greece, at an advanced stage of decomposition, suspended by the belt which the deceased had used to hang himself.
The man had been missing since August. His last sighting was at the Social Security Offices (IKA) in a small town called Siatista, where he was told that his small monthly disability allowance of 280 euros was suspended, as a result of the latest austerity measures. Eyewitnesses said, according to Athens daily ‘Ta Nea’, that they saw him leave upset and speechless. Soon after he placed a call to his family telling them that “he feels useless” and adding that he “has nothing to offer them anymore”. Naturally, they were alarmed, and soon after called the police. It was only the other day that the Police located his hanging body in a remote wooded area, suspended by the neck from the cliff which was to be his last resort.

@ All

This story is big news in France. The position of Berlin could be summed up as “be reasonable, do it our way!”.

As is invariably the case, the truth of the situation lies somewhere in the middle (as the comments on the WM article reveal).

In sum, the question now is whether Merkel is willing to stall until after the elections next year and let Hollande stew in the meantime (until France undertakes not a pointless internal devaluation but a reform of other aspects of the economy). On past evidence, it seems that she is.

Could we stay on thread please?

The disagreement between the European Commission and the IMF on fiscal multipliers is the one of the three essential economic arguments about the European component of the global financial crisis (the other two being how the losses of the financial sector will be allocated and can (and should) EMU be made workable?). Attempts to avoid or dismiss these questions cast the integrity and seriousness of any debate participant into serious question.

It is an astonishing situation that the European Comission is more fixated on fiscal consolidation than any other global or international institution and it cuts to the heart of our crisis – the ideological extremity of the supposedly technocratic elements of the European Union.

I think its cards on the table time for Irish economists. Where do you stand?

@ Shay
Many economists are compromised. They are in government or bank employment. They would be for financialism.
BTW this isn’t austerity when bankers get paid 500k – this is financialism. It is right to call it this. Austerity has certain virtuous connotations. It implies self sacrifice for a greater common good. What is happening in Europe is impoverishment of the masses for the financial classes. It is financialism not austerity

@ SB: “I think its cards on the table time for Irish economists. Where do you stand?”

An ‘absent’ contributor posed similar questions several times and was eventually ‘Gulagged’. You cannot use his name in any comment or reply.

To All Economists who populate this site:

Its known as Duty of Care (to use citizens). You either accept this moral and ethical responsibility or you do not. No one can force (or even persuade) you to exercise this duty. Hence, if you are observed to be failing in that duty the conclusion is clear: you’re a self-made cad.

Mind you, if the ‘minders’ of this blog, and some of the economically quaified commentators did their duty – they would most likely be slimed – (“They supported the NO side in the referendum!”). Never underestimate the level of evil and mendacious behaviour of pissed-off Politicians.

So what might that ‘duty’ consist of?

1. Refuse to participate in any public forum which has any politician anywhere near it, or associated with it or worse, has invited you to participate in it. Stay well clear of the ‘tent’ and make sure your aim is accurately directed toward the interior of the tent.

2. Condemn all political attempts to increase the levels of social exclusion, deprivation, inequality, etc. Un-employment is out of your control – its an international problem. Put the political back into Political Economy – where it belongs.

3. Come up with a fair and reasonable estimate of a ‘living income’ (not a minimum one!). Badger all politicians and business leaders until there is a joint consensus about this. Income inequalities lead inexorably to social inequalities – with the consequent need for the state to intervene. So be proactive about a ‘living income’. Remediation is far more costly (politically as well as financially).

4. Demand, insist, lobby and make yourselves complete ‘pains-in-the-ass’ about the absolute need for a constitutional prohibition on deficit budgets for day-to-day spending. Both government and opposition deputies are equally culpable for our current economic mess. They need to be forced to face it and deal with it. If you continue to provide them with ‘political cover’ they will, like the insurance cheats, say “Thanks”: then p*ss on you! And since you are lying down, you might be forgiven for thinking that it was raining!

I recognise and accept, that in carrying out this Duty of Care, you will become very unpopular (in political terms). But at least you will have displayed honesty. Or is ‘honesty’ only for DGs and persons of little importance?

Why does it matter what Irish economists think? They have absolutely no influence over policy making. (At EU level, probably even national)
I think we need to start coming up with actual solutions at this stage, taking into account reality as it is not as we want it to be. (Something along the lines of someones institutional reform campaign)
I mean, only one thread over we had Joseph Ryan reccomending a return to Tom Barry slash and burn politics.
So thats the plan? Buy and sell eachother houses, then when it all falls apart burn them down?

The ideational makeup of the EU economic policy making institutions have been known for quite a while

It is what it is

‘An ‘absent’ contributor posed similar questions several times and was eventually ‘Gulagged’.You cannot use his name in any comment or reply.’

Ah thats why it kep rejecting my posts! Thanks BWS and thanks for the reply a thread or so over

@Brian Woods

An ‘absent’ contributor posed similar questions several times and was eventually ‘Gulagged’. You cannot use his name in any comment or reply.

As an anonymous contributor I think it would well within the rights of any of the blogs academic contributors to slap me down on my errors of fact or reasoning but that does not seem to be the way things happen.

Let us banish the ghost of confidence fairy future and stick to the facts.

Gavyn Davies earlier blog post from late last month in the FT is as good a summary as I have read so far of the “debate”.

High fiscal multipliers undermine austerity programmes

The evidence against austerity improving the general well being of Europeans is extremely strong (unless you mistake “Latvian conservatives” for Europeans) so in whose interests is it really being pursued?


Why does it matter what Irish economists think? They have absolutely no influence over policy making. (At EU level, probably even national)

If you see a substantial proportion of the economics profession as being essentially water carriers for neoliberal “reforms” then it matters a great deal.

The “difficult” (except for banks) and painful (except for conservatives) decisions to which There Is No Alternative would be much harder to inflict without the veneer of respectability conferred on them by economists.

The European Commissions “Box 1.5” is the proof of that, it demonstrates the crucial need to avoid a political explanation of European economic policy and claim instead that it is the work of disinterested technocrats focussed only on the economic health of the EU.

@ SB: I agree on the ‘right’s of the owners to delete unacceptable commentary. Incivility is intolerable. However in the case of our absent contributor, I or any other blogger cannot use his full name, just his initials. This is censorship. Its sad and juvenile. But there it is!

It seems to be a matter of indifference that empirical data, gathered by reputable economists (eg: James Galbraith), clearly demonstrating that the current fiscal ‘consolidations’, whatever-your-having-yourself, are guaranteed to increase social inequality. I’ll stop here before I become realy abusive! Thanks.

@ rf: Got you! Thanks as well!

@ Gregory Connor

Thanks for that. Slightly boggling.

@ Shay Begorragh, et al.

The war of ideas is important and I think it is shifting. Though I recall paul quigley’s perceptive remark that powerful institutions shift their positions subtly to retain the impression of authority.

Stepping back, my scorecard is:

(1) ECB under Trichet a proponent of Alesina, with the holy grail of ‘expansionary fiscal contraction’. ECB under Draghi, gone quiet about this.

(2) IFAC under John McHale slowly retreating from presenting this as a legitimate debate in year one report (I’m doing this from memory so I stand to be corrected), to, yes, still arguing for more frontloading in the second report but with more emphasis on contraction, uncertainty and a lower amount of frontloading. A movement away from Alesina.

(3) IMF struggling badly with their remit and reputation and peeling away. The troika is splitting with this being most intensely argued over about Greece.

(4) The Commission now engaged with last ditch efforts to say it ain’t happening, but reports like today’s from Spain undermine their position: though they may then simply shift onto another rationale. (2.39pm).

re- Shay : ‘the ideological extremity of the supposedly technocratic elements of the European Union’

– who posted that quote, and from whom, that lauded the advent of technocracy as removing ‘essential decision making from politics’ [or v. similar terms] ? The inference was unmistakably the removal of due political and democratic process from decision-making, and went on to call for the extension of technocracy beyond the economic & into other spheres.

A line seems to have been crossed some time ago beyond the usual means through which ‘technocracy’ is smuggled behind these proper processes, and the aims of whatever is behind the ‘technocrat’ golems themselves has enlarged beyond what is thought to be possible to present to the people, whether through the existing politics or politicians.

When lies of this magnitude are committed behind such powerful screens, and among likely competing factions, there is little hope of knowing exactly what is going on, without a hefty chunk of subjective error.

But what I think is undeniable is the fact that, as I think you yourself implied, the ‘vehicle’ of governance and decision making has been placed in the position of decision-maker – ostensibly carrying out a neutral, machine-like, a-political task -( It’s almost an absurdity that the ECB chose to couch the whole thing in such a metaphor; it’s like a naif bogeyman, but real nonetheless)- but ECB machines and golems can only carry out tasks allotted to them by agencies that have deliberate purposes.
In this case with purposes at odds or at least very likely to be at odds with the wishes and well-being of the greater mass of citizens.


re NYT link and your observation.

” Friedrich Schneider, an economics professor at Johannes Kepler University in Linz, Austria, estimates that about 120 billion euros in Greek assets lie outside the country, representing an extraordinary 65 percent of the country’s overall economic output. The assets abroad include bank deposits, real estate holdings and untaxed business income.

A frequent adviser to European governments and international financial institutions, Mr. Schneider says that 70 billion euros is in Switzerland, about 20 billion euros is in Britain, with the rest spread out in other places like the United States, Singapore and offshore tax havens like the Cayman Islands.

“All the rich people have sent their money out of the country,” said Mr. Schneider, who is perhaps the foremost expert on tax evasion and shadow economies in Europe. “That is why we have such unequal burden-sharing, with the average Greek having lost 40 percent of their income after taxes, while the wealthy have their money outside of Greece.”

If the democratically elected governments of those countries ‘helping’ Greece really wished to help Greece, allow me to propose a solution that would not hurt ordinary Greeks, but would collect more than enough to put the Greek government finances on a stable footing.

Have the ‘helping’ governments sequester 50% of all liquid assets owned by Greek individuals but situated outside of Greece.
Allow for reclaim after a period of 12 months, provided the origin of those funds is proven to come from after tax income.

Absolutely. Not because of concern about sufficiency of law, but because the ‘helping’ governments would prefer to attack impoverished Greeks, rather than Greeks who are fully fledged (in every sense of the word) members of the international financial set.

I see Switzerland is estimated to hold €70 billion of, probably untaxed and undeclared, Greek money. How about an emergency financial imposition on the Swiss government to hand over these funds?
Equally unlikely, for the same reasons.
Private capital, however it is derived, appears to be a free agent. It seems it can never be touched. Yet the country that the capital originated in and fled from, can be destroyed by creditors chasing their capital, both public and private, as in Ireland’s case.
Neither the logic, the morality nor indeed the politics of all this add up.

@ Joseph Ryan

With the best will in the world, I cannot follow your logic. Surely, if solidarity is to apply it must first do so between the citizens of Greece themselves! The same holds true for any country dependent, to take a well-known comment, “on the kindness of strangers”.

The same strangers are, incidentally, neither gullible nor naive.

All of Europe’s misfortunes
12 November 2012 Polska The Times Warsaw

The Old Continent is grappling with a moderately severe economic crisis, a severe political crisis, a critical civilisational crisis, and perhaps a deadly spiritual crisis, argues a Polish philosopher Marcin Krol

We know that Europe used to be almost always in a state of crisis. … The difference between a constant risk of crisis and the present situation, however, is that Europe had always retained a capacity for self-reflection, and thus for self-criticism, which was creative, so the successive crises were always overcome. Today Europe has lost this ability. Without constant self-criticism there will be no change, no growth, and no stability. The Europe-until-now is all but gone.

We can hardly imagine a future world without Europe, not as a leader perhaps, but as a provider of fundamental norms and standards binding us and the generations to come. Europe is our form of existence and we have no other. This is not so much a matter of choice as a fact. That’s why we don’t know what to do when Europe is becoming elusive, vanishing, weakening to the point of non-existence.

Re positive report…De Weit are calling it a “whitewash” .credibility of Troika going down the tubes.

Off thread but will not be addressed otherwise.
The overseas aid budget is more than HSE shortfall….
Can someone tell me why this is so?
What are we doing with overseas aid when we need the money here?


This group of economists from Italy, Spain, Portugal and Greece might interest you. One thing I have learnt over the past few years. The absence of any Irish voice in the plethora of critical economic groups that are emerging across Europe is slightly depressing. But I suppose it reflects the wider conservative political climate of the country:

They are hosting this meeting in Madrid next week:

King of the Multipliers (note the body language!)

The World From Berlin
‘Stabilizing Greece is the Least Costly Option’

Euro-zone finance ministers agreed on Monday to give Greece two more years to meet its budget goals, but this was overshadowed by a rift between the ministers and the International Monetary Fund over whether Greece should get a further debt cut. German commentators say the crisis could boil over again.

At the heart of the dispute is a disagreement over whether euro zone governments need to write off some of Greece’s debt to them. The IMF thinks they should, but Germany is strongly opposed to a write-off because it would entail real losses to taxpayers ahead of the next general election in late 2013.

…. the general election in 2013! Has Labour pulled out? Oh – German election.


@David O’Donnell
“The Europe-until-now is all but gone.”

No doubt about that. Germany has Europe by the throat. Europe must await the thumbs up or thumbs down from the German elections in 2013 to see it she any chance of surviving.

“With the best will in the world, I cannot follow your logic.”

I find what is being imposed on Greece an abomination. That this is being done in name of Europe, of which I am supposedly a citizen, makes me begin to abhor the very idea of Europe.

Your are correct in saying that the Greek regime should show more solidarity with its citizens, but the creditor countries know full well that it will not show solidarity, but they proceed regardless, knowing full well that brunt of their impositions will bear down hardest on those at the bottom.
Impositions and theories that are now being shown to achieve the exact opposite of what they purport to achieve.
In the discussion with Greece, did the Troika ever propose that the retrieval of €70 billion in Swiss bank accounts, be thrown into the mix of ‘targets’ to be achieved. If they did, you can be sure it was not top of the list.

The present situation in Europe cannot continue. Even people experienced in European matters, such as yourself, must be beginning to realise the damage that has been done to any concept of European solidarity.

To my mind if the unemployment crisis is not improved fairly soon, not only the EZ but the European single market will break apart.
From my perspective, if the only alternatives are on the one hand, the preservation of a creditor hegemony, the Euro, free capital flows, and debtor and youth impoverization, and on the other hand, the breakup of the EZ and the EU, if will go for the break up of the EZ and the EU.

My logic may be flawed, but so be it.

Still nothing on why we are spending the equivalent of the HSE deficit on overseas aid.
That’s the kind of issue we need discussed here

We give what, half a percent of GNP? Even leaving aside moral reasons, long term sustainable global development is in our national interest for a variety of reasons. (Migration, health, conflict prevention – which will be more expensive to deal with after the fact- expanding the global economy or what have you)
I think the burden of proofs on you, why shouldnt we? And how can, we on the one hand, demand that the world bail us out, but then complain about our (very limitied) financial obligations (set by the UN) to help other countries develop? Iin an international system and global economy that has structurally favoured rich white western countries)

@ rf
Because we can’t afford it. It does us no good nor is it spent correctly. It’s yet another price we pay to be liked.

1 If not using a very narrow definition of national interests, I personally think it does do us some good
2 A lot of it is ‘spent correctly’, that which isnt should be identified and put to better use (you wouldnt destroy social welfare based on one story of lavish welfare coke parties in the Daily Mail, I hope?)
3 We dont really do it ‘to be liked’. Its done for a variety of reasons. The main, perhaps, is we’re a member of a variety of internatrional institutions, where its a (legal?) obligation.
4 Should we not have been receipients of EU structural funds in the 80s, for example (and lets not overstate our generosity in the EU either)
This sounds like the old immigration argument – when they’re coming here its bad/when we’re going there its an entitlement
By any measurement we’re a very privileged people, and that’s not down to our own hard work or inate genius. Rather its primarily the luck of history

@ RF
Appreciate the argument on this.
Re point 1 – can you show me how it does us some good. Other countries link national aid to purchases – e.g. I’ll give you 1 million Euro to buy our dairy products etc so that is kind of useful. In Ireland we don’t do this – we just give the cash away. It would be better to use overseas aid to indirectly subsidise Irish companies to export to developing markets.

Re point 2: social welfare is also something that needs to be looked at…but at least the money circulates in our own economy by and large

Re point 3: We do it to be liked. We’re spas like that. Who’s going to invade us if we stop paying?

Re point 4: Maybe we shouldn’t. Maybe it was the structural funds that lead us to be so crap at managing money. Maybe we would have been better off building up slowly. Besides we have had to pay all that back now

I think we’re just coming at this from two irreconcilable perspectives.

On national interests, no I can’t point to anything directly. (Maybe someone more informed on the specifics can?) I do think it’s in our long term interests to support sustainable development though, both for the reasons mentioned above (migration, health, conflict prevention etc) – although granted it’s difficult to quantify how much any of those will affect us directly. I also think it’s in our interests as a small (now broke) country to do our best to reinforce certain positive global norms (in this context, the desire to help small broke countries!)

I guess all our other disagreements run from that initial one. I just don’t see the potential savings from cutting the aid budget as being worth it on any level. (There is the moral obligation as well, which I buy into, but won’t get self-righteous if you disagree!)

Counterpoint II


Default option

It is time to revisit the default option.

… The default option is economically efficient, it is fair, and it is politically sensible. It may be the only way to hold together an unsustainable structure that threatens to drive deeper divisions and set back the magnificent integration project on which Europe has embarked.

Ashoka Mody is Charles and Marie Robertson visiting professor of international economic policy at the Woodrow Wilson school, Princeton University. He was a deputy director in the IMF’s research department

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