CapitalistImperialistPig

Peter Coy, writing for Bloomberg’s Business Week: The Financial Times reports today that Germany’s central bank, the Deutsche Bundesbank, “has signaled it would accept higher inflation in Germany.” The newspaper story says this would be “part of an economic rebalancing in the euro zone that would boost the international competitiveness of countries worst hit by the region’s debt crisis.” Coy finds this move obvious: If the euro area is going to hang together over the long run, you have to undo those competitiveness gaps that have been created,” says Schoenholtz. The peripheral countries need to lower their prices relative to Germany’s. If Germany had very low inflation, those countries would require outright deflation, which is extremely painful. If Germany accepts somewhat higher inflation, primarily via more generous wages to workers, the rest of Europe can have a low but still positive inflation rate. Says Schoenholtz: “To anybody who’s a monetary economist, this isn’t news.” Of ...

The "Euro Crisis" has receded from the front pages, at least for the moment. Why so? Fundamentally because the European Central Bank (ECB) did what it said it wouldn't/couldn't do - print up some extra money. So what does quantitative easing, European style, look like? The most obvious way to do it would have been to buy up sovereign debt from the troubled Southern countries, thereby lowering their borrowing costs. This is one thing recommended by Krugman and other critics. Silly naive Americans! The European way is more subtle. What happens instead is that the ECB lends money - half a trillion Euros, so far - to peripheral and other troubled banks. These loans are secured by collateral - mostly sovereign debt of the self-same troubled nations. This provides those nations with liquidity, for the present. It doesn't immediately do anything for solvency problems, but with luck, it might help prevent a disastrous descent into another recession. The deal made was t...

David Henry, Jennifer Ablan and Lauren Tara LaCapra explain. A week or two ago a friend had a moment of panic. He had some money temporarily parked in a money market fund. Would that cash turn trash when the Euro folded? His broker explained that his balance was small enough to be covered by the Federal Deposit Insurance Corp, and hence effectively backed by the US government. People and corporations with more than $200k need to be more concerned though. Money markets had put quite a bit of cash into Euro bonds, or European banks and at least some of that was at risk. Consequently, those money market funds have been struggling to unload their European assets, and this has produced a (so-far) low intensity run on European banks as everybody grabs for dollars. That's the reason for the swap deals announced today, and the Reuter's article linked above has helful details and explanations. One short excerpt: "They're basically responding to the looming failure of ...

Non-Euro Poland says Germany must step up to save the Euro . Foreign Minister Sikorski speaking in Berlin: What, as Poland’s foreign minister, do I regard as the biggest threat to the security and prosperity of Poland today, on 28th November 2011? It’s not terrorism, it’s not the Taliban, it’s certainly not German tanks. It’s not even Russian missiles which President Medvedev has just threatened to deploy on our border. The biggest threat to the security of Poland would be the collapse of the Eurozone. And I demand of Germany that, for your own sake and for ours, you help it survive and prosper. You know full well that nobody else can do it. I will probably be first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity. You have become Europe’s indispensable nation. You may not fail to lead. My impression of the high (or low) lights: catastrophe looms; needed are tighter union, guarantee of debts, bud...