Readers Question: Is there an inbuilt deflationary bias in the Eurozone? Note: I originally wrote this post in 2010. Unfortunately, every year there is a reason to update the post and suggest the deflationary bias in the Eurozone keeps getting stronger. Deflationary bias means that there is a tendency for economic policy to promote lower …
Question from the Economist. – It is easy to understand the case that European austerity is self-defeating. But it is also easy to see that one cannot run large deficits year after year without limit and that some countries (Greece, Portugal) have exhausted the willingness of private investors to finance them. Is Austerity self-defeating? Austerity …
A look at the pros and cons of Scottish independence from an economic perspective. It is said you can’t put a price on freedom and cultural identity. But, when it comes to independence, economics seems to be one of the biggest factors to sway voters in Scotland. When asked in a poll, only 21% favour …
No one doubts the commitment of many in the EU to seeking a way to prevent the Euro breaking up. The Euro project is deeply embedded in the European establishment. But, are they fighting a lost cause? Are the structural problems with the single currency so severe, they would be better off pursuing an orderly …
Readers Question: How sustainable do you think that the austerity measured imposed on European countries are in economic and political terms? This is a good question. Firstly, I feel there is a certain political appeal of austerity. See: Why is austerity politically popular? When austerity was introduced, there was a reluctant support for austerity – …
Iceland’s crisis was brutally severe. With a bloated current account deficit and bad debts, Iceland experienced a severe balance of payments crisis and banking losses. Iceland responded by: Not guaranteeing all banking debt. Many large banks failed and were seized by the government Allowing the currency to devalue by 50%. Imposed capital controls to prevent …
Readers Question: What policies could Germany / the EU use to help save the Euro? The Euro has many problems. The most obvious outer problem is rising bond yields and the threat of sovereign debt default. Related to sovereign debt default is a banking default, e.g. from Spanish banks which would cause knock-on effects. But, …
One thing I really struggle to understand at the moment is why any country would want to join the Euro. The experience of the past few years is that membership of the Euro can devastate your economy. Given a chance, half of the members of the Euro would wish they had never joined. Greece, Spain, …