Macro-Economic Policy in the Eurozone: Are There Alternatives to Slow Growth and High Unemployment?
Mark Weisbrot, Co-Director, Center for Economic and Policy Research Luc Everaert, Assistant Director for the European Department, IMF
This debate, which took place Sept. 24, 2011, provides a critical overview of the eurozone crisis. It is perhaps most remarkable in that Weisbrot offers a harsh critique of the policies that have been implemented by the International Monetary Fund (IMF) and its partner European authorities (the European Commission and the European Central Bank) — an argument he also made recently in a column in The Guardian — and Everaert of the IMF does not offer much disagreement. “I also agree with Mark’s diagnosis of the problem. I think the problem is a policy failure,” Everaert admits at the beginning of his presentation (minute 1:09).
The two economists differ on the solution to the eurozone’s current problems. While Weisbrot proposes that fiscal and monetary policies can be used to stimulate struggling eurozone economies, such as in Greece, Everaert warns of the dangers of inflation. (Minute 10:13).
The debate recording is time-stamped with the main points made by both participants, so that listeners and viewers can move easily to their subjects of interest. The first 30 minutes of the debate are in audio only, with the rest in video.
Part 1 - IMF Eurozone Debate: Mark's Presentation (Audio) | Download
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Part 2 - IMF Eurozone Debate: Luc Everaert Responds to Mark Weisbrot
Part 3- IMF Eurozone Debate: Mark Weisbrot Responds to Luc Everaert
Part 1 - Timestamps for Mark Weisbrot's Presentation
00:15 Mark Weisbrot begins
1:10 Not a debt crisis, a crisis of policy failure
2:27 European authorities' bad macroeconomic policies causing recent financial market instability, and long-term stagnation and unemployment
3:19 Three macro policies to revive growth: fiscal, monetary and exchange rate policy
4:09 PIIGS countries not allowed to use basic macroeconomic policies revive their economies
4:54 ECB’s dangerous game of brinkmanship, trying to force troubled countries to adopt wrong policies, is at root of these crises
7:45 It's not just the German electorate's worries, but also the ECB's policies that repeatedly provoke crises.
9:43 None of these countries except possibly Greece had unsustainable debt burden until world recession.
10:15 What macroeconomic policy failure looks like, country by country (Powerpoint slides)
12:06 Argentina had worst financial collapse in decades and was unable to borrow in international markets. In three years, it achieved pre-recession level of GDP, despite a much deeper recession than any of the PIIGS countries.
13:00 Greece, Portugal, Spain
13:47 Argentina proves that long period of stagnation after even a severe financial crisis is not necessary or inevitable, as seems to have become a common refrain
14:44 When struggling to recover, Argentina was not helped, but harmed: multilaterals drained 4% of net GDP from Argentina's economy.
15:14: Net exports were not a major factor in Argentina's recovery. Achieved rapid growth by reshaping macroeconomic policy.
16:20 When will Eurozone countries reach pre-recession rates of growth? At least a decade for some. A reason to rethink austerity.
17:00 Debt is not a permanent condition: default, chaotic default, restructuring, inflation, growth, low interest rates, borrowing from central banks – there are many ways to resolve debt crises rather than have a lost decade or more.
18:41 Unemployment in Ireland: 5% to 14%
18:50: Unemployment in Greece doubled, now at 15%
19:05 Real social costs reflected in high unemployment
19:30 Work-sharing in Germany a solution to unemployment
20:10 Italy, Portugal, Spain
20:40 Inflation would be only constraint to expansionary fiscal policy; but inflation is low and falling
21:39 Internal devaluation is brutal, and doesn't work.
24:34 PIIGS countries projected to do more fiscal tightening, worsening stagnation.
26:10 Conclusion: Bad policy is responsible for the current crisis
28:30 Ironically, BRICS countries considering rescuing Europe – but Europe can rescue itself.
Part 2 - Timestamps for Luc Everaert's Response
00:40 Luc Everaert begins:
Weisbrot has diagnosed the problem – how to generate growth?
1:08 It is true that we have a policy failure.
2:06 I'm not sure I heard a solution.
2:20 Most countries get out of financial crises through mix of adjustment, exports, devaluation.
2:37 Argentina got out of an isolated crisis, thanks to robust commodity markets. Global environment is different now.
3:06 Ireland is closest to doing the right things, adjusting wages and increasing exports. But global economy is slowing down.
3:35 What can macro policies do? Monetary policy solutions are limited. Overnight rates are low, long-term yield on government paper is low.
4:15 Companies not borrowing, sitting on cash.
5:15 Expansionary fiscal policy precluded by 60% of Europeans balking at high cost of borrowing.
5:50 Germany has a totally different mentality from the rest of the world. Success comes from discipline.
6:25 Different cultures reflected in the democratic system are an obstacle to solving Eurozone crisis.
7:00 Is it sustainable to increase deficit spending to make up for lost demand?
7:24 Agreement on Weisbrot's diagnosis, but macro policies are not the answer at the moment.
8:14 Despite single institutional set-up, states within U.S. have different rates of unemployment, some very high like peripheral countries of Europe. Not easy to solve in U.S., much less Europe.
8:54 At one time in its history, Argentina was the 5th richest country in the world. Now it's 77th.
9:39 Recent news account of Argentine shop owner found he could not update prices fast enough to keep up with inflation.
10:17 Inflation is, socially, the most devastating thing you have.
10:43 Bulgaria in 1990s faced hyperinflation. Public sector salaries plummeted and caused social devastation.
11:31 Greek income is twice as high as that of Argentina. Leaving the Eurozone could lead to 40-50% reduction in Greek income.
12:26 IMF is not against debt relief, but if a debtor country agrees to pay, we need to accept that choice.
13:15 Debt restructuring difficult – One-third of debt is domestic, not external.
14:24 Are the benefits of writing down Greek debt all that great?
Part 3 - Timestamps for Mark Weisbrot's Rebuttal
00:52 Mark Weisbrot, rebuttal:
Growth of Argentina from beginning of 20th century not relevant to its post-crisis response.
1:52 Measuring Argentina's success by 90% real growth from 2002-2011; 12 million were pulled out of poverty in the first few years.
2:24 Distributional effects of inflation are not conclusive.
2:41 Hyperinflation is irrelevant – Argentina's 25% inflation is not hyperinflation.
3:02 South Korea was one of the fastest growing economies in the world in the 1960s and 1970s, but had 20 percent annual inflation; went from a poor to a rich country
4:05 Electoral success for Kirchner based on Argentina's strong macroeconomic performance.
5:00 U.S. Stimulus compensated for only one-eighth of the fall-off of private demand resulting from the collapse of real estate bubble
6:14 Nestor Kirchner pursued heterodox policies in the face of IMF opposition and opposition from the media; succeeded enormously
7:44 Public education and outreach can eliminate unfounded fears of hyperinflation, in order to better solve the problems of stagnation and unemployment.
8:18 Skeptical of predictions of 40-50% reduction of Greek GDP resulting from leaving the Euro.
9:14 Greece would be in a better position post-default than Argentina was in 2002.