7/3/18: U.S. Economy: May Keynesian Economics and Fiscal Prudence R.I.P.

We've got an old problem, Roger. Deficits and their forward projections:

And the more detailed vision of the problem:

Now, keep in mind: we are accumulating these at the time of an expanding economy and continued accommodative monetary policies. In other words, the spring is being loaded on the double.

May both, Keynesian economics and Fiscal Prudence, R.I.P.

12/1/17: Breaking EU Rules? Often and Freely

EU's Fiscal Discipline in one table: here is a summary of the EU member states' performance when it comes to 3% deficit ceiling set out as a core fiscal criteria:

Yes, even after a large scale fiscal 'retrenching' of 2016, on average, EU member states have been outside satisfying fiscal deficit ceiling criteria 41 percent of the time, with EA12 average being worse - at 43 percent.

Six EU states are more than just serial violators of the rule, with their respective frequencies of falling outside the rule constraints being in excess of 2/3rds. It is worth noting that in this group, all states are violating rules predominantly during the years of economic expansion.

Another 11 states are frequent violators, breaking the rule more than 1/3rd of the time but less than 2/3rds. Here too, with exception of Cyprus and Slovenia, more violations took place during the times of expanding economies than during the periods of recessions. All in, 17 states of the EU are breaking the EU fiscal rule on deficit ceilings more than 1/3rd of the time. Only 7 states break the rule less than 25 percent of the time and only 5 break the rule less than 10 percent of the time.

Surely, nothing to worry about.

15/7/15: Greece is Not Unique in Dissing EU Commitments

In previous two posts, I explored couple of angles on the famous Trust thingy that, allegedly, Greece so massively lacks. But, of course, my comparatives related to the 'peripheral' euro states, mostly Ireland. You can use the same two charts to draw conclusions on comparing Greek performance to other states, but the question still remains: outside the 'periphery' just how much Trust currency is there in circulation in the EU?

Take countries that are not in the group of borrowers from the IMF. There should be plenty of Trust to go around amongst them and the EU. And this means there should be plenty of agreement between their policies and the policies suggested to them by the Commission, especially those aimed at addressing that major burner of Trust - failure to comply with core fiscal criteria.

We can take a snapshot of this 'metric' of Trust by looking at how severely do EU member states deviate in their policies from the Commission prescriptions. This 'metric', after all, is an exact replica of the arguments advanced in the Eurogroup in the context of accusing Greece of wasting EU's trust.

So here is a handy chart, from the EU Commission:

What the above shows is that back in 2013 all of the EU states who were issued with 'country-specific recommendations' concerning their poor fiscal performance opted to ignore these recommendations. That is some Trust, there.

Between 2011-2012 and 2013 the extent of non-compliance did not decline (despite all the talk about austerity and structural reforms), but rose both on average and specifically in 10 out of 14 countries covered by these recommendations. That's some more Trust, right there.

On average, in 2013, some 43% of all EU Commission recommendations were not implemented by the states that are so distinctly Trustworthy from Greece, that Greece was singled out as a special case by the Eurogroup and the Euro Council.

Some of the worst offenders was Germany, and its pal (in berating Greece) Lithuania, plus the usual suspects of Italy and France.

Now, I am not a fan of EU Commission recommendations. But the fact is: Greece is by far not unique in terms of 'reforms' fatigue or lack of engagement with the EU Commission proposals on fiscal adjustments.

15/7/15: Is it Trust or Fiscal Performance? Greece v Excessive Deficit Procedures

As noted in the previous post, that Trustless Greece apparently is a better example of European policies of internal devaluation at work than the best-in-class Ireland. At least by metric of competitiveness.

But what about Fiscal Trust? After all, there is a unifying metric for that one - the European Commission own Excessive Deficit Procedure. And here is a handy table from EU Commission own presentation on the topic:

Yes, yes... a little help. Since 1997 (that is across the Celtic Tiger era boom too), Ireland was on the penalty bench with EU in relation to breaking fiscal rules for 11 years. Greece - also 11 years. One has zero Trust in its EU account. The other has Fort Knox worth of that 'hard' EU currency...

Either the Rule is dodgy or something's fishy in the arithmetic...

20/12/2011: The end of Neo-Keynesianism

I have recently written about the lack of debt reductions under the 'austerity' packages in Europe (see link here). Now, Washington Post weighs in with an excellent note on the demise of the Neo-Keynesian doctrine of unlimited borrowing-based deficit financing - link here. It is, therefore, perhaps befitting to note that today's Le Monde quotes Professor Jean-Marc Daniel of ESCP saying that "without doubt we are living in the last hours of a European Social model". The article, cited in the eurointelligence.com briefing note, but not linked, also cites absurd abuses of the Social Contract in Greece and other PIIGS.

This, of course, is a logical conclusion to the economically illogical proposition that states with severe debt overhang (in excess of 80% of GDP or GNP for public debts) can borrow their way out of the debt crisis.

But the problem goes deeper than that. Europe 2020 - the only growth policy platform for the EU27 - relies extensively on the Social Model as the core driver for growth, both in terms of justifying subsidies and transfers that are represented as 'socially productive' even if they are economically dubious in nature, and in terms of justifying more significant role for public investment in driving future growth capacity.

Neo-Keynesian doctrine of continued and accelerating deficit financing in the face of public debt overhang is now pretty much dead. Next step - the idea of 'Social Economy' that is based on achieving equality of outcome by transfers of income and wealth, both intra- and inter-temporal. States do run out of borrowing capacity, folks. And it doesn't matter a bit whether this happens when you need to run a deficit or not.