Tal y como os prometí, incluyo en esta segunda entrega sobre el Doctorado Honoris Causa de Paul de De Grauwe en la Universidad de Valencia su lección magistral. Hay muchos compañeros que me la han solicitado como material de clase, por lo que también se puede descargar DiscursdeGrauwe en valenciano, castellano e inglés. La tesis principal es que es necesario llegar a un acuerdo político para que el ajuste dentro de la zona del euro sea simétrico y coordinado. Este posible acuerdo se verá imposibilitado mientras persistan consideraciones morales que distingan entre países virtuosos y culpables a la hora de generar los desequilibrios macroeconómicos y financieros. El texto original en inglés es el siguiente
The eurozone as a morality play
Mr. rector, colleagues, students and friends.
Let me first express my feelings of gratitude and joy for being here with you today receiving such a great honor of Doctor Honoris Causa from your University. The degree you bestow on me is not only a great honor, it also signals to me and to many of my colleagues in this and in other universities how important the search for truth is. So in a certain sense what we celebrate here today is this constant effort to find the truth that I and many of my friends and colleagues have been engaged in. It will be no surprise to you that I want to lecture on the crisis in the Eurozone; a crisis that if not contained soon will endanger the fabric of the European Union. It is no exaggeration to state that there is a deep cleavage between the North and the South of the Eurozone. The cleavage is not only economic: a relatively prosperous North that up to now has not been affected much by the sovereign debt crisis; and a troubled South (including Ireland) where the debt crisis has hit with full force, pushing countries into a bad equilibrium that is characterized by high interest rates, budgetary austerity, increasing unemployment and economic recession. Parallel to this economic cleavage, there is a deep divide in the nature of the analysis provided by economists of the causes and the remedies of the sovereign debt crisis. The view of the causes and the remedies of the crisis that prevails in Germany and its satellites, has two ingredients. First, on the diagnostic side there is the conviction in the North of Europe that governments’ profligacy that led to excessive deficits and debts is to be blamed for the crisis. Second, on the remedies side the Northern view is that punishment should be meted out to these governments so as to signal to them that they should not try “to sin again”
The “Northern diagnosis” of the crisis may apply to Greece, it does not do so for most other Eurozone countries, in particular not to Spain. Prior to the crisis, the government debt to GDP ratio was declining in most Eurozone countries. Debt to GDP ratios started to increase after 2007 when governments were forced to save the banking system and to sustain economic activity (by allowing automatic budget stabilizers to do their work). Instead of blaming these governments, “Northern analysts” should congratulate them for having saved the banking system and much of the private economy. The high budget deficits and debts inherited from that episode are testimonies of the public service provided by governments.
A diagnosis that blames governments for the crisis is almost surely not the one that provides the correct remedies. The insistence that governments should be punished for their bad behavior by tough austerity programs has had the effect of bringing the Eurozone to the brink of a new recession. This will not help to reduce budget deficits and debts. Invariably, recessions increase government deficits and debts, thereby offsetting a large part of the effects of budgetary austerity.
This being said, the levels of government debts and deficits are too high and should decline over time. The point is that the Northern analysis has the effect of imposing tough austerity too quickly and on too many countries at the same time. This leads to a deflationary spiral that is pushing the Eurozone into a double-dip recession. Rarely has an analysis been so influential and unhelpful in solving a crisis. Why has Northern Europe be gripped by such an unhelpful diagnosis of the crisis?
One reason is that too many analysts in Northern Europe see the crisis as a problem of moral hazard. Many well-known economists in these countries have stressed the irresponsible behavior of governments of peripheral countries as the root cause of the crisis and have warned that providing financial assistance will induce these governments to remain irresponsible. This view has dominated the popular press in countries like Germany, Finland and the Netherlands. As a result, the popular sentiment in these countries has very much turned against financial assistance for “irresponsible governments”. This popular sentiment has been very influential in shaping the official German, Finnish and Dutch policies. But is the crisis the result of moral hazard?
Take the cases of Ireland and Spain. The government debt ratios in these two countries declined dramatically prior to 2007. More than in other countries the governments of these countries were forced to rescue the banks and to sustain economic activity. The effect was that the government debt exploded in these countries. With no stretch of the imagination can one interpret these events as being the result of moral hazard. The Spanish and Irish governments did not increase their debt since 2007 because they expected to be bailed out by Germany or any other country. They did this because any government responsible for the welfare of its people would have done the same thing. There was no other valuable option except letting the economy and the market system in these countries implode.
Proponents of the moral hazard diagnosis may object here, by noting that even if the governments’ actions were not driven by moral hazard, the latter was at the core of the banking crisis that forced the governments to intervene. Thus, ultimately the cause of the crisis is moral hazard: banks took excessive risks because they expected to be bailed out by their respective governments. This interpretation does not make sense either. It is true that bankers took excessive risks. But not because in the back of their mind they had this idea that governments would rescue them. Top management of the banks could not possibly have hoped that governments would bail them out, as such a bailout operation could have cost them their heads. They took excessive risks because the euphoria during bubble years prevented them from seeing risks. The euphoria in turn was generated by financial markets that lacked any disciplinary mechanism, and by an absence of supervision as the supervisors were gripped by the same euphoria. Moral hazard had almost nothing to do with this.
Moral hazard thinking in Northern Europe has now degenerated into a morality play in which there are good and bad countries. The good countries should not assist the bad ones. Doing so would reward bad behavior. Punishment is necessary. The facts are that if in the South private agents took too much risk prior top the crisis, it must also be true that the creditors from the North were equally reckless in giving so much credit to borrowers they should have expected would have payment difficulties. It takes two to tango. For every reckless debtor there is a reckless creditor. So we must stop playing a morality game in the Eurozone. Responsibilities of the disaster are shared by the North and the South. The moralistic attitude is the single most important obstacle to resolving the crisis. This moralistic thinking also has the effect of introducing distrust and hostility between member countries. As long as this distrust exists no solution of the Eurozone crisis is possible. So, let’s set aside this moralistic attitude and think practically of the ways the crisis can be solved. I see three major areas in which action is necessary.
The first area has to do with the role of the ECB. First, the ECB should step in to stop panic and fear from undermining the stability of the Eurozone. The ECB is the only institution that can prevent market sentiments of fear and panic in the sovereign bond markets from pushing countries into insolvency. As a money creating institution it has an infinite capacity to buy government bonds. On September 6, 2012 the ECB finally recognized this point and announced its “Outright Monetary Transactions” (OMT) program, which promises to buy unlimited amounts of sovereign bonds during crises. This was a great step forwards and has had the effect of reducing the existential fears that existed in the Eurozone. Thus, the ECB has made the right decision. However, the credibility of the program suffers because of continuing vehement criticism especially in Germany. Many arguments continue to be voiced against the view that the ECB should be a lender of last resort in the government bond markets. Some of them are phony, in particular the inflation risk argument. Others should be taken more seriously. There is the moral hazard risk. I argued that moral hazard risk has been exaggerated. However, in this case we should take it seriously. When the ECB provides unlimited support in the government bond markets it may create incentives for governments to reduce their efforts at reducing debts and deficits. This risk, however, should be taken care of by separate institutions, in particular the European Commission, aimed at controlling excessive government debts and deficits. These are in the process of being set up (European Semester, Fiscal Pact, automatic sanctions, etc.). This disciplining and sanctioning mechanism then should relieve the ECB from its fears for moral hazard (a fear it did not have when it provided 1,000 billion to banks at a low interest rate in the context of the LTRO program at the end of 2011 and early 2012).
The continuing fierce criticism against the notion that the ECB should be a lender of last resort in the government bond markets explains why the ECB attached a number of conditions to its OMT-program. These conditions are likely to reduce the effectiveness of that program. First, the ECB will restrict its bond purchases to bonds with a maturity of 3 years or less. There is no good economic argument to impose such a restriction. In fact, it may even increase the fragility of the sovereigns. These will now have an incentive to issue bonds with shorter maturities than they would have done otherwise, making them more vulnerable to liquidity crises.
Second, the ECB has attached as a condition to the use of the OMT-program that the countries concerned apply to the ESM which may then subject these countries to additional austerity programs. This creates the problem that countries are pushed further into a recession as a condition to obtain relief from the ECB. It is difficult to understand the economic logic of such an approach. It is in my view the result of the moralistic approach to the problem that is very popular in the North of Europe and that wishes countries applying for support to be punished first for their sins.
The second area of action has to do with macroeconomic policies. The European Commission should take the lead in changing the nature of macroeconomic policies in the Eurozone. Countries experiencing deficits in the current accounts of their balance of payments have no other possibility than to continue austerity, however, the European Commission should allow these austerity programs to be spread over a longer period. While the European Commission travels to the deficit countries and preaches austerity, it should also go to the countries with a surplus on their current accounts and urge them to stop trying to balance their government budgets when the Eurozone risks moving into a recession. The European Commission’s message should be that budget deficits in these countries are good for them and for the system.
It is my contention that the asymmetry in the macroeconomic policies in the Eurozone whereby the Southern European countries are forced into violent austerity programs while the North of Europe refuses to offset this by expansionary macroeconomic policies is the cause of the double dip recession in which the Eurozone is now pushed into. This recession now constitute the single largest risk for a breakup of the Eurozone. As countries will be pushed further into a recession, despair will be intensified leading to uncontrollable social and political reactions.
Finally, a budgetary union and a banking union are key ingredients of a sustainable monetary union.
Budgetary union, however, is a long-term prospect. There is little prospect for achieving it quickly, because it implies a fundamental transfer of sovereignty from the nation states to European institutions. What can be done relatively quickly, however, is the issue of common Eurobonds. This approach has the merit of signaling to the market that irreversible steps towards budgetary union are being taken today, thereby reducing the existential fears that destabilize the Eurozone. Clearly many problems will have to be overcome to launch Eurobonds but this approach has the merit of starting a process that is unavoidable if one wishes to maintain the euro.
The same can be said about the banking union. Such a banking union is important to make the monetary union sustainable. It makes it possible to cut the “deadly embrace” between the banks and the sovereign. When banks are in trouble, the sovereign also gets into difficulties. Conversely, when the sovereign is defaulting , the banks are pushed into insolvency also. This is one of the problems Spain suffers from today. A banking union allows cutting the link between the national government and the banking system.
A banking union, like a budgetary union, however, re- quires a large transfer of sovereignty to European institu- tions. The latter must be given the power to supervise the banks. It must also be given the resources to intervene in crisis times.
These are the three components of any program to save the euro. The details of such a program can differ, but the broad outlines cannot be varied much. Whether such a program can find the necessary consensus among the European political leaders remains to be seen.
Such a program can only work if there is trust between the member-countries of the Eurozone. Northern European countries must trust that Southern European countries are serious about reducing their debt and deficit levels. Southern European countries must trust the Northern European
countries that these have no intention to dominate them. Without mutual trust no further steps towards transfer of sovereignty is possible. And trust can only be established if one is willing to set aside the moralizing analysis that has prevailed in the last few years, and that leads to the view that some countries have been virtuous and others sinful. The Eurozone is not a morality play.
We should act quickly because the level of trust between the member-countries is declining fast. It is my conviction that it is not yet too late.
Paul De Grauwe
London School of Economics
[…] am not arguing, in the manner suggested, say, by Paul De Grauwe, Dani Rodrik, or Harold James, that it is wrong at all to interject moral considerations of blame […]
Simply wish to say your article is as astounding. The clarity in your post
is just excellent and i can assume you are an expert on this subject.
Fine with your permission let me to grab your
feed to keep up to date with forthcoming post. Thanks a million and please keep up the gratifying work.
If you are using firewall software such as Outpost Firewall Pro, the paid edition
of Online Armor and Kaspersky Internet Security or PURE, you can take advantage of using their Blocklist
feature that will block connections to known malicious URL and IP addresses.
If you encourage your visitors to write their original reviews about your products instead of coping reviews from competitive websites to show you have circulation and satisfied customers, your website is
more likely to earn higher ranking in the major search
engines. This is what professionals do. While you’re at it,
remove all or fix 404 errors. NOW, I don’t mean you should just put keyword spam in your footer. It would cut the marketing project to fit it into your budget. Since keyword analysis is needed for both SEO (search engine optimization) and SEM, we often confuse using these terms. Having realized that it is practically not possible to combat with SEO Next in terms of services and offerings at this point of time, rivals have started thinking of an easier alternative of being successful in their mission. Online research is required to determine the packages and SEO Company. Numerous SEO services over competitive price for outsourcing your site online, but, would it be best to hire the locals if the nature of your business limits to your local as well. Search engine optimization is necessary for online businesses because it lets your website get found. For instance, how many TV viewers then came to your car lot and purchased a vehicle. Effective SEO techniques for Bloggers aren’t any different.
Regardless of whether you like it, love it, or hate it, social media has become a major player in the SEO world, and it is a costly
mistake to ignore it. Create a general, high-level category in which you want to manage all phrases’for example ‘global,’ ‘online,’ ‘channel,’ and so on. SEO defined. Law firms face various challenges and have issues in remaining at the top in the market. But be aware of the traffic issue. Such companies know the best about industry and market trends. If customers like what they see, they just might go on reading.
You need to take part in a contest for one of the best websites on the net.
I am going to highly recommend this web site!
Excellent, what a web site it is! This blog presents valuable information to us, keep it up.
That is a good tip particularly to those fresh to the blogosphere.
Brief but very accurate info… Appreciate your sharing this one.
A must read post!
excellent post, very informative. I ponder why the other specialists of this sector don’t notice this. You should continue your writing. I’m sure, you have a great readers’ base already!
Many thanks for your post. I’d really like to comment that the tariff of car insurance differs a lot from one policy to another, mainly because there are so many different facets which bring about the overall cost. For instance, the model and make of the auto will have a large bearing on the price tag. A reliable old family car will have a more economical premium than the usual flashy sports car.
Meyers Park is also home to the Theater Charlotte, Charlottes oldest arts organization.
These three belongings have the significant significance in our existence.
Wholesale Ralph Lauren pas cher for guys provide
a perfect fit and also these come in different color shades that can be matched with just about
any pants.however if you abrasion the texture, you will definitely realize which there is little of faith or humanity as part of this
A person essentially help to make seriously articles I would state.
That is the very first time I frequented your web
page and to this point? I surprised with the research you made to make this particular put up incredible.
Hi there, I discovered your web site via Google at
the same time as looking for a comparable topic, your web site came up, it seems good.
I’ve bookmarked it in my google bookmarks.
Hello there, just become aware of your weblog through Google, and located that it’s truly informative.
I’m going to be careful for brussels. I’ll be grateful should you proceed this in future.
Many other folks shall be benefited from your writing.
Hello there! Quick question that’s totally off topic. Do you know how to make your site mobile friendly? My blog looks weird when browsing from my iphone. I’m trying to find a theme or
plugin that might be able to resolve this issue.
If you have any suggestions, please share. Many thanks!
This heightens the productivity inside the kitchen and tends to make
the work load easier and even more swiftly.
Within a separate medium bowl sift collectively the flour, baking soda and salt.
As soon as these a bit more dedicated conditions are
ruled out, there tend to be some techniques to approach
treatment. It directly addresses the imbalance which authorized
the yeast number commonly within each and every final person to become
a yeast infection as part of your case. Since a true believer of drinking
ACV daily this time for over a month , I can share with you the advantages you will definitely obtain.
The warning signs are the launching of the candida overgrowth,
and also when youre lucky you can easily clear your very
own signs or symptoms and also that is it.
Thanks for your personal marvelous posting!
I actually enjoyed reading it, you can be a great author.
I will always bookmark your blog and will often come back down the road.
I want to encourage you to ultimately continue your
great job, have a nice day!
Hiya! I know this is kinda off topic however , I’d figured I’d ask.
Would you be interested in trading links or maybe guest authoring a blog
post or vice-versa? My website goes over a lot of
the same subjects as yours and I believe
we could greatly benefit from each other. If you happen to be interested feel free to
shoot me an e-mail. I look forward to hearing from you!
Terrific blog by the way!
It’s amazing to pay a visit this web site and reading the views of all mates concerning this post, while I am also eager of getting know-how.
I think this is one of the most significant
info for me. And i’m glad reading your article. But wanna remark on few general things, The web site style is perfect, the articles is really nice : D. Good job, cheers
I would like to thank you for the efforts you’ve put in writing this site. I really hope to view the same high-grade content from you in the future as well. In fact, your creative writing abilities has motivated me to get my very own site now 😉
Hi there to all, because I am really eager of reading this blog’s post to be updated daily. It consists of fastidious data.
Heya fantastic blog! Does running a blog such as
this take a lot of work? I have very little expertise in programming but I had been
hoping to start my own blog soon. Anyways, should you have any suggestions or tips for new blog owners please share.
I understand this is off topic but I simply needed to ask.
I’m not that much of a internet reader to be honest but your sites really nice, keep
it up! I’ll go ahead and bookmark your website to come back down the road. All the best
You’ve no idea how long I have been trying to find something such as this. Good job!
Wow, this paragraph is nice, my sister is analyzing
such things, therefore I am going to tell her.
I drop a comment whenever I appreciate a post on a site or I have
something to add to the conversation. It’s triggered by the fire communicated in the post I browsed. And on this article PAUL DE GRAUWE: DOCTOR HONORIS CAUSA POR LA UNIVERSIDAD DE VALENCIA (II) | (bAg): Blog de economía de la AldEa Global. I was actually moved enough to drop a comment 😉 I actually do have some questions for you if you tend not to mind. Could it be just me or do some of the remarks come across as if they are left by brain dead people? 😛 And, if you are posting at additional places, I’d like
to keep up with anything new you have to post.
Could you make a list every one of all your communal sites
like your twitter feed, Facebook page or linkedin profile?
Pretty! This has been an extremely wonderful post.
Thanks for supplying this info.
I must thank you for the efforts you have put in penning this website.
I really hope to check out the same high-grade content from you in
the future as well. In fact, your creative writing abilities has encouraged me to get my own blog now 😉
Hi there i am kavin, its my first occasion to commenting
anyplace, when i read this piece of writing
i thought i could also make comment due to this sensible piece of writing.
Customers feel that the brewing time can be somewhat long though the coffee is excellent.
You could also get real milk creamer to make fantastic hot chocolate
and cappuccinos and they have even great Hot Tea brands from which to choose.
5 by 10 by 13 inches, the B40 is lightweight, simple to move and needs little space.
Nice post. I was checking continuously this blog and I’m impressed! Extremely useful information specifically the last part 🙂 I care for such info much. I was seeking this certain information for a long time. Thank you and good luck.
Fantastic website you have here but I was curious
about if you knew of any message boards that cover the same topics discussed here?
I’d really like to be a part of online community where I can get opinions from other knowledgeable people that share the same interest. If you have any suggestions, please let me know. Many thanks!
It’s an awesome piece of writing in favor of all the web users; they will obtain benefit from it I am sure.