Via Eurointelligence, here is a link to a working paper issued by the Polish Central Bank, which proposes the dismantling of the Eurozone under the direction of the ECB. (Not sure I’d trust them with the job, myself.)
Author: Kevin O’Rourke
Dani Rodrik has an excellent presentation on the Eurozone crisis here.
(H/T Eurointelligence)
It has always struck me that the first order consequence of making it easier for firms to fire people in the middle of a depression would be that…firms would fire more people. And it has never struck me that this would be desirable.
Now Gauti Eggertsson, Andrea Ferrero and Andrea Raffo have a new paper pointing out that at the zero lower bound, where monetary policy cannot offset the deflationary impact of structural reforms that would otherwise be desirable (lowering mark-ups in product and labour markets), such reforms can be contractionary (by generating expectations of deflation and raising real interest rates).
All of which seems obvious once you think about it, but it needed someone to point it out. And this is a problem for a continent whose leaders refuse to take the demand side of the economy seriously, and are hoping that “structural reforms” will obviate the need for them to rethink their macroeconomic strategy.
Another chance for Paul Krugman to cite St Agustin!
(H/T Eurointelligence, which also links to a report on how the Greek government is saying that there will be no more austerity next year, even under a third bailout. This crisis is not yet over.)
“Thailand without the baht” is a useful way of thinking about the Irish economy’s boom, bust, and subsequent flat-lining, so it’s great to see that Paul Krugman is about to get his teeth stuck into the Asia-Euro comparison.
Some people argued in 1997/1998 that the crisis showed that the entire East Asian growth model was flawed. Whatever the benefits or costs of that model may have been, the subsequent rebound showed that these economies were still capable of delivering long run growth once their short run macro problems had been resolved. Seen from the inside the Irish growth model seems pretty rickety, but respectable if unexciting growth rates of the sort you see in countries close to the technological frontier should be attainable in the future once our own short run macro problems, and those of the Eurozone as a whole, have been resolved. Unfortunately this doesn’t seem to be on the horizon right now, which is why the “default and devalue” scenario has to be an option now in Greece, and may eventually come onto the policy agenda in other Eurozone periphery countries as well. The problem with the “short run” is that it can continue for an awfully long time unless corrective action is taken.
Alan Taylor and I have a new paper on the never-ending crisis in the Eurozone (and yes, the crisis is still with us, unless you regard mass unemployment as a matter of no concern, and has a way to run yet). It is available here.