Good economists know that they know nothing

Stochastic models are a virus, which infected economic theory and practice in past twenty years. But it’s not their fault. They played their role. They were pretty useful in many instances and, at least, they managed to generate great profits for many years to one overblown industry. They are really not to blame. In the same manner as we can’t blame the Pythagorean theorem, if we use it to guess tomorrow’s lunch menu.

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The eurocrisis can still be solved. If we want to

Source: Reuters

Some politicians seem to enjoy the crisis so much that you shouldn’t expect them to solve it.

The solutions to the European crisis are surprisingly simple, well-known and increasingly gaining support even from sceptical economists. The solution would be imminent if the politicians opened their eyes and pulled their heads out of the 1980s’ paradigm. Whether it can happen is a different question.

The European crisis is a consequence of two and practically only problems: the cyclical crisis of demand and the systemic crisis of eurozone institutions. The debt and financial crises are mere symptoms. If we solve the demand-led vicious circle and rectify the institutional set-up of the common currency, the debt and financial crises will cease to be an issue.

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Why the EU won’t break up

Wilders brings the drachma back

The nationalists bring the drachma back. Literally.

If the Eurozone breaks up, so will the European Union. At least in the form we know it. Everybody talks about it and it’s true. The current crisis is however a reason, why the European union will survive and become stronger.

At the end of May, the Greek Commissioner for fisheries Maria Damanaki told the media that the question of Greece leaving the Eurozone is now on the table. Together with an unsourced sentence from der Spiegel it brought a wave of political speculations and increased volatility in bond and foreign exchange markets.

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Let the lazy Greeks help themselves!

Titles in the Bild Magazine about Greece and the bailout

"Just sell the islands you banrupt Greeks!" "The Bild writes to the Greek bankrupt PM: You won't get anything from us!" etc.

Greeks were happily spending others’ money and piling up uncovered debts. They were living beyond their means. They should be therefore punished or at least publicly humiliated. Anyway, all southerners are similar idlers and slackers. All you hear is just their mañana, domani, siesta and fiesta. Greeks are especially repulsive. They’re fat, they sit all day long outside their houses, eat lamb and drink ouzo.

Indeed, the Greeks are the fifth most obese developed nation, they eat by far the most lamb in Europe and they have a world monopoly for ouzo. But how do you want to measure laziness? There’s no clear indicator whatsoever, which would capture it in its entirety and hence confirm this dangerous but seemingly obvious popular wisdom. On the contrary, the indicators we have would suggsest the very opposite.

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Dr Competitivelove or: How I Learned to Stop Worrying and Love Inflation

The European Central Bank decided yesterday to increase its key interest rates by 25 basis points to 1.25%, starting a cycle very likely to continue further over 1.5% this year. Whatever happens in Southern Europe and however it is going to impact less competitive economies of EMU, the ECB is fighting a wrong enemy.

In times of rising energy and food prices, the ECB tries to tackle a non-existent problem. The 2.6% inflation has no potential to trigger an inflationary spiral in the context of budgetary austerity and salary moderation.

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Who’s afraid of democracy in the EU?

UKIP protesting for Ireland

European dissidents fighting for democracy and freedom of nations

‘Europe of Freedom and Democracy’ is the name of the most eurosceptical formation in the European Parliament. Looking at their concrete portfolios, one would see to what extent their perception of the world is xenophobic and nationalist. Their first argument in the European Parliament is however not the preponderance of the white man, the opposition towards immigration, other cultures or religions, as their ideology would suggest. They don’t seem to hate the EU because it undermines their vision of the world. Not at all. Their first and most repetitive argument is that the EU is not democratic enough. I cannot agree more, but…

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The real role of the EU conditionality in shaping successful transitions in post-communist Europe

Post-communist countries emerged from the Soviet hegemony with fairly heterogeneous economic and political backgrounds. Disregarding the former Soviet republics with their inner differences – due mainly to their status in the Soviet Union as well as development prior to the sovietisation – two groups of states may be recognised in Central and Eastern Europe (CEE): the so-called northern and southern tiers.

Countries from the northern tier had not only a clearly better prospect of accession to the European Union but also coped better with the transition from centralised economies and one-party regimes. This led to a broad assumption of the positive effect of the European Union on the transition process. Some neglected inconsistencies between the visible correlation and actual causality must however be drawn. Continue reading

Own currency didn’t help the Czech economy during the crisis

EUR/CZKJust few days ago, Petr Nečas, the Prime Minister of the Czech Republic, declared that the floating exchange rate helped the Czech Republic to handle the recent crisis (FT). It would be really intriguing to know, whether he was analysing a briefing for Richard Nixon from 1973, or he actually looked at what happened between the Czech crown and Euro in last years. Continue reading

Why did the Irish vote against the Lisbon Treaty and why should eurooptimists bother?

EU's gonna chip your kids

Many factors influenced the outcome of the first Irish referendum on the Lisbon treaty, most of them were very well described and put in journalistic pseudo-causal reflections. One logic has however been systematically neglected both by media and scholars: the existence of numerous hordes of mistakenly defined eurosceptics.

Since the first “NO” in the Danish referendum on the Maastricht Treaty in 1992, the euroscepticism has become a recurrent issue in European politics, sometimes present in formerly eurooptimist or highly “eurotolerant” countries such as Ireland. Nonetheless, with the long-term exception of the UK and recent ones of Hungary and Latvia, the Euroscepticism is still rather a minor issue. According to the recent Eurobarometer survey, despite the crisis and the growing problems of the Eurozone, only a significant minority (15% in autumn 2009) seems to be eurosceptical.

This article argues that the main problem of euroscepticism is not the core part of eurosceptics but the false understanding that EU officials have of euroscepticism. It  may lead to distortions in people’s perception of the European construction due mostly to the perceived illegitimacy and actual lack of democratic accountability. Ultimately, it may lead to much more catastrophic outcomes for the EU than the Irish NO to the Lisbon Treaty.

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Is EU rational?

According to the revived version of the intergovernmentalist theory described by Moravcsik’s, the principle of domestic preference formation would force governments to act on European level only when they pursue common interests or when a given inefficiency may be resolved more easily by coordination. These acts are rational, since without significant reasons for transfer of competencies, any assignment of inefficient competencies would not take place.

For instance the Single European Act (SEA) was implemented mainly for purposes of economies of scale with a very little encroachments to those policies, where these economies would be insignificant or impossible. The SEA limits itself on removing barriers and increasing thus only procedural freedom as described by Amartya Sen and circumvent any redistributive actions. Its impact is completely Pareto-efficient and very few arguments may be raised from national-interest positions to oppose it. Moreover, the theoretical principle of subsidiarity, which was introduced thereafter in the Maastricht Treaty, has transformed this principle into a rule. It is hence explicitly given that the transfer of competences takes place only in situations where necessary and rational. Continue reading