C'mon! Greece isn't really bust and it can pay its debts

Not that anyone will be willing to admit it


euros_channel_money

One monetary policy to rule 'em all ... and in the darkness, bind them

One of the features of the EU and the Eurozone is that we don't have, except in the most trivial sums (sure, tens of billions, but compared with GDP of €15 trillion or so, piddling) an integrated fiscal policy. But we do have the one monetary policy. And that one monetary policy is over much, much, too large an area.

It has been said that if Germany and Benelux had been the only people in the euro then it would have been fine. Allowing France in made it a bit wobblier. Portugal, Spain, Italy, Greece, should never have been allowed anywhere near it.

To give an example, in the early 2000s, Germany was in an economic bind, it desperately needed to reform its labour market (it did, under Hartz IV, and it worked very well) and it needed low interest rates while it did so. So, down came euro interest rates (partly on the basis that Germany said so, but also on the grounds that Germany is by far the largest single component of the eurozone economy).

This entirely screwed Ireland and Spain, who immediately went on vast property speculation surges. This is what happens when interest rates are too low for a specific location: but they've got to be the same as in other places with the same currency all the same. And absolutely the same would have happened in the UK if Gordon Brown hadn't stopped Tony Blair taking us in.

We've also had much the same in reverse these past six years. Monetary policy has been, in the eurozone, absurdly tight. For at least some countries that is. It was Milton Friedman (with Anna Schwartz, in Monetary History of the United States) who got it right about what the Fed had done in the Great Depression.

No, the Depression wasn't a result of the Crash of '29. Rather, it was a result of the Fed allowing the money supply to collapse following that. This is now the accepted wisdom, to the point that Ben Bernanke actually announced, in a speech, to the ghost of Friedman: “Milton, you were right. We got it wrong and we're not going to do so again.”

And thus all that quantitative easing and unconventional monetary policy that has been going on.

And the results bear it out too: the UK, US, the other places that have been doing QE have had a hard time of it, but it has been a bad recession, not a depression. Those places that have not had QE, ie the eurozone, have been shafted. For goodness sake, the ECB was raising interest rates three years ago. Even while the Spanish, Greek, Portuguese economies were in the toilet.

The real lesson of this economic shock has been that monetary policy really, really, matters. Rather more than fiscal policy does in fact. Still matters, in the jargon, at the zero lower bound which was where everyone thought it didn't matter at all.

But the other one is that what I and everyone else (including, obviously, Milton Friedman) were saying back in the late '90s as the euro took form were right. The first time some asymmetric shock hit this currency area that was too large to be optimal, then certain areas of the economy were simply going to be screwed. That first asymmetric shock was Germany needing low interest rates leading to the property booms elsewhere.

The second, of course, was the crash of '08, meaning that certain areas, Greece, Portugal and so on, needed much looser monetary policy that, say, Germany did. And it's that fact, that monetary policy will be, must be, the same in a currency bloc that damns the euro as an economic idea. It's simply spread out over too large an area. And yes, we did all say so.

What has cratered the Greek economy is not austerity, it's not fiscal policy and it's not the debt burden: it's monetary policy. The country needs and has needed vast amounts of QE all along. And it hasn't been getting it: thus cratering.

All of this makes the attitudes of those breathing sighs of relief at not having to throw Greece out of the euro somewhat darkly amusing. Because it's actually the euro, along with the one-size-fits-all monetary policy a single currency imposes, that has really caused the problem in the first place. ®

Broader topics


Other stories you might like

  • Lonestar plans to put datacenters in the Moon's lava tubes
    How? Founder tells The Register 'Robots… lots of robots'

    Imagine a future where racks of computer servers hum quietly in darkness below the surface of the Moon.

    Here is where some of the most important data is stored, to be left untouched for as long as can be. The idea sounds like something from science-fiction, but one startup that recently emerged from stealth is trying to turn it into a reality. Lonestar Data Holdings has a unique mission unlike any other cloud provider: to build datacenters on the Moon backing up the world's data.

    "It's inconceivable to me that we are keeping our most precious assets, our knowledge and our data, on Earth, where we're setting off bombs and burning things," Christopher Stott, founder and CEO of Lonestar, told The Register. "We need to put our assets in place off our planet, where we can keep it safe."

    Continue reading
  • Conti: Russian-backed rulers of Costa Rican hacktocracy?
    Also, Chinese IT admin jailed for deleting database, and the NSA promises no more backdoors

    In brief The notorious Russian-aligned Conti ransomware gang has upped the ante in its attack against Costa Rica, threatening to overthrow the government if it doesn't pay a $20 million ransom. 

    Costa Rican president Rodrigo Chaves said that the country is effectively at war with the gang, who in April infiltrated the government's computer systems, gaining a foothold in 27 agencies at various government levels. The US State Department has offered a $15 million reward leading to the capture of Conti's leaders, who it said have made more than $150 million from 1,000+ victims.

    Conti claimed this week that it has insiders in the Costa Rican government, the AP reported, warning that "We are determined to overthrow the government by means of a cyber attack, we have already shown you all the strength and power, you have introduced an emergency." 

    Continue reading
  • China-linked Twisted Panda caught spying on Russian defense R&D
    Because Beijing isn't above covert ops to accomplish its five-year goals

    Chinese cyberspies targeted two Russian defense institutes and possibly another research facility in Belarus, according to Check Point Research.

    The new campaign, dubbed Twisted Panda, is part of a larger, state-sponsored espionage operation that has been ongoing for several months, if not nearly a year, according to the security shop.

    In a technical analysis, the researchers detail the various malicious stages and payloads of the campaign that used sanctions-related phishing emails to attack Russian entities, which are part of the state-owned defense conglomerate Rostec Corporation.

    Continue reading
  • FTC signals crackdown on ed-tech harvesting kid's data
    Trade watchdog, and President, reminds that COPPA can ban ya

    The US Federal Trade Commission on Thursday said it intends to take action against educational technology companies that unlawfully collect data from children using online educational services.

    In a policy statement, the agency said, "Children should not have to needlessly hand over their data and forfeit their privacy in order to do their schoolwork or participate in remote learning, especially given the wide and increasing adoption of ed tech tools."

    The agency says it will scrutinize educational service providers to ensure that they are meeting their legal obligations under COPPA, the Children's Online Privacy Protection Act.

    Continue reading
  • Mysterious firm seeks to buy majority stake in Arm China
    Chinese joint venture's ousted CEO tries to hang on - who will get control?

    The saga surrounding Arm's joint venture in China just took another intriguing turn: a mysterious firm named Lotcap Group claims it has signed a letter of intent to buy a 51 percent stake in Arm China from existing investors in the country.

    In a Chinese-language press release posted Wednesday, Lotcap said it has formed a subsidiary, Lotcap Fund, to buy a majority stake in the joint venture. However, reporting by one newspaper suggested that the investment firm still needs the approval of one significant investor to gain 51 percent control of Arm China.

    The development comes a couple of weeks after Arm China said that its former CEO, Allen Wu, was refusing once again to step down from his position, despite the company's board voting in late April to replace Wu with two co-chief executives. SoftBank Group, which owns 49 percent of the Chinese venture, has been trying to unentangle Arm China from Wu as the Japanese tech investment giant plans for an initial public offering of the British parent company.

    Continue reading
  • SmartNICs power the cloud, are enterprise datacenters next?
    High pricing, lack of software make smartNICs a tough sell, despite offload potential

    SmartNICs have the potential to accelerate enterprise workloads, but don't expect to see them bring hyperscale-class efficiency to most datacenters anytime soon, ZK Research's Zeus Kerravala told The Register.

    SmartNICs are widely deployed in cloud and hyperscale datacenters as a means to offload input/output (I/O) intensive network, security, and storage operations from the CPU, freeing it up to run revenue generating tenant workloads. Some more advanced chips even offload the hypervisor to further separate the infrastructure management layer from the rest of the server.

    Despite relative success in the cloud and a flurry of innovation from the still-limited vendor SmartNIC ecosystem, including Mellanox (Nvidia), Intel, Marvell, and Xilinx (AMD), Kerravala argues that the use cases for enterprise datacenters are unlikely to resemble those of the major hyperscalers, at least in the near term.

    Continue reading

Biting the hand that feeds IT © 1998–2022