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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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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. Read More…

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. Read More…