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Column The real problem to our economic crisis? The eurozone itself is deeply flawed.

Our shared currency system is not just preventing our ability to recover but is at the root of inevitable further looming crises, writes Mike Hall.

AT THE WEEKEND, I attended an event co-organised by the ‘Ballyhea Says No To Bondholder Bailout!’ campaign and Debt and Development Coalition Ireland. The former concerned with the banks’ losses now foisted on Irish people as government debt, and the latter ‘celebrating’ (if that’s the right word) 20 years of action against similar debt injustice perpetrated on developing countries.

Besides the unfair imposition of ‘odious’ debt in both situations, another grievance in common is the intervention of the IMF with their neoliberal inspired ‘austerity’ conditions, inflicting huge suffering on ordinary citizens. (Never on the elites, of course.) Thus, Debt and Development Coalition are expressing concern now as well at the plight of a number of European countries. And to their surprise, EU and ECB authorities are handing out even more severe prescriptions than the IMF in the guise of ‘help’.

Whilst I have to express huge admiration for the sheer tenacity of over two years of campaigning, including alternate weekly protest marches in Ballyhea and Charleville, Co Cork, I came away feeling that we’re a very long way from either understanding or tackling the underlying economic crises in the eurozone. As in any currency union, such crises ultimately spread to all parts if left to fester long enough.

The fobbing off by European and ECB officials reported by the Ballyhea group (‘sympathy’ but no action) is merely a symptom of a much wider dysfunctional system.

Austerity = recovery?

Nicely on cue as I write this, the European Central Bank, the ECB, has just announced another ‘base’ interest rate cut, and also, significantly, stated that these near zero rates will continue for an indefinite period.

Let’s get one thing understood right now. These are not the actions of a central bank seeing the ‘recovery’ peddled by the propaganda machine, but rather, firmly, the opposite outlook – stagnation, at best, or even contraction – and for an extended period, as their ‘forward guidance’ also reveals. Actions speak louder than words.

The eurozone economy as a whole is still in dire trouble after five years and getting worse, not better. Heaping ‘austerity’ onto crippling private and public debt burdens is a failed policy. Even the IMF’s own research department recognised this fact earlier this year in a study on the effects of austerity on ‘fiscal multipliers’.

However, never historically an organisation to pass up the opportunity to impoverish the masses, an increasingly schizophrenic IMF, ultimately led by politics, not economics research, continues to recommend (or demand) even more and faster austerity. Except now with the some added ‘PR’, otherwise empty, Orwellian guff about making budget cuts ‘growth friendly’.

I would have hoped by now that the idea of growing anything by reducing its size could not be seriously expressed publicly, but neo-liberal economic brainwashing for 30 years has had an appalling effect on people who should know better – media, mainstream ‘economists’, politicians and all.

The eurozone system itself is deeply flawed

And if anyone thinks Ireland’s unemployment is coming down, signalling some improvement here, add back in the JobBridge, Tús and others on temporary ‘schemes’, not counted as on the ‘register’, and you will soon see that the truth may even be opposite, but certainly no significant reduction.

It’s a continuing mess. Further debt crises, the result of failed policies, with panicked, ill-considered ‘fixes’ can be expected. Greece looks to be first in the queue (again), but other, larger countries are on the way.

So, did I hear anything much in Charleville to give me much hope? Sadly, whilst noting the tremendous grit and spirit of the Ballyhea group and other debt activists, no.

The elephant in the room remains as big as ever whilst we chase the mice. The eurozone system itself is deeply flawed and cripples, by design, the ability of member governments to make macroeconomic policy in the interests of their majority ordinary citizens. To restore activity in the production of the goods and services we need in the ‘real’ economy. Which in turn makes debt more manageable.

The crippling of macro economic policy options is not even recognised by most mainstream economists, never mind media commentators or the wider public. Yet, it is this aspect, and not the public debt burden, that is the real cause of the currency zone’s deeper and continuing recession/stagnation and mass unemployment. This period of debilitating financial crash aftermath, in the eurozone, is now lasting longer than that during the 1930s following the 1929 collapse.

Many other countries in the world – developed, ‘western’ countries – have equally high public debt to GDP ratios, yet they have no public debt ‘crises’ nor do they perceive the need for the level of crippling austerity and deficit/debt reduction programmes in the teeth of a recession, that we see in the eurozone. Japan sees no difficulty in its recent decision to take its debt/GDP ratio to near twice that of Ireland, with a new fiscal stimulus programme. Why the problem for eurozone countries? To mangle an old quote, “…it’s the Euro system, stupid!..”

‘Unconventional monetary policy’

There are a few very serious and prominent financial figures, who have recently come out publicly, and clearly stated that it is the Euro shared currency system at fault. Not just preventing our ability to recover, but at the root of inevitable further looming crises that threaten to even break up the currency union itself.

They aren’t simply ‘Cassandras’; they are offering well considered solutions – solutions that are derived from careers at the highest levels of institutions like central banks and internationally prestigious academic tenure. Solutions that have very thorough history and present day advocacy in non-mainstream, ‘heterodox’, schools of economics – schools like MMT (Modern Monetary Theory) that can credit themselves with some remarkably accurate predictions of the EMU’s present difficulties, before it was even introduced.

Broadly termed ‘unconventional monetary policy’, these solutions which can quickly restore growth, prosperity and employment recognise the true nature of the modern ‘fiat’ currency we use, how it functions, and the full implications for monetary and fiscal (macro) policy options that are inherently available.

Debt-free finance

One such person advocating use of ‘unconventional’ monetary policy is Lord Adair Turner, career economist and banker, former head of the UK FSA (Financial Services Authority). He has stated publicly, and correctly, that the UK issues its own fiat currency and never can have any difficulty providing ‘borrowed’ finance at its target interest rate, or indeed simply ‘issuing’ the finance, debt free, as required.

Therefore, there is no ‘financing’ issue for the UK in pursuing a policy of fiscal stimulus (tax cuts and/or more spending), if it so chooses. The same is true for the US (and any others with fiat, free-floating currencies) and is clearly the principle behind Japan’s recent stimulus policy choice.

Another such person, referring to the eurozone this time, is Italian career central banker and Professor of Finance, Biagio Bossone. Bossone has published public articles summarising his work considering the flaws holding back growth in (and even existentially threatening) the eurozone and how ‘unconventional’ monetary policy offers a very powerful solution.

Specifically, he recommends using the ability of Euro currency central banks to issue debt-free finance to enable agreed, eurozone/EU wide negotiated, fiscal stimulus measures. Measures that can quickly bring all the inextricably interlinked unemployment, growth and debt crises finally under control.

It is essentially as simple as Keynes wrote in the 1930s, “….fix the unemployment, and the rest will look after itself…”. To do that, just as Keynes successfully advocated, fiscal stimulus measures are required.

Mike Hall originally qualified as an Electronics Engineer, and was later employed in the worker co-operative sector after some MBA studies. He has spent the last few years studying the history and current work of ‘heterodox’ economics schools (Post Keynesians, MMT) ,which credibly predicted much of the financial mess and ensuing deep recession that has exposed deep flaws in the eurozone system.

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