Steve Keen: The Maastricht Treaty is a suicide pact for European leaders
Professor Steve Keen was on Tonight with Vincent Browne in Ireland last week, where the topic understandably was the European Union. The question for Steve was how the Maastricht Treaty fits his economic paradigm, which follows Hyman Minsky’s Financial Instability Hypothesis. Below is a 10-minute clip from the show. Here, Steve says he wrote back in 2000 that the Maastricht Treaty was "a suicide pact for European leaders because it was written in the believe that there would never be a serious financial crisis." He says European governments would be unable to respond to one if it happened because of the strictures of the single currency. This is certainly what we have witnessed.
Steve’s site also points us to the full program if you click here.
Vincent Browne has a very good show where he asks provocative questions. For example, last September I caught an episode where he and his guests explore whether Ireland should abandon the euro. Browne has been extremely critical at the way Ireland has handled the crisis because cuts in public service have not been balanced by bondholder haircuts. For Browne at his questioning best, see this clip in the middle of my post asking "Why are Irish taxpayers bailing out unsecured bank creditors?"
P.S. – I should note that Steve also mentions the spectre of ‘nationalism’ as something that looms large. I agree with him and I have written about this often. If the policies of austerity are carried forward as seems likely, eventually Economic nationalism will rise up and cause a clean break with an unpredictable outcome.
On Steve’s domestic currency idea, the key to getting it to work is that the new domestic currency be one acceptable to pay federal taxes in Ireland. Now, that will get it to be accepted. Depreciation is inevitable in this scenario in my view, however. For more on this, see my post on How and why Greece will leave the euro zone.
Keen’s right but was the M. Treaty about stopping “government” doing anything about the economy or stopping “other” governments doing anything about the economy.
In Europe its the politics that matter – they’re not there and have never been there for a fiscal/debt union.
Yes, the Maastricht Treaty was about stopping free riders. See here from 2010:
https://pro.creditwritedowns.com/2010/05/how-belgian-debt-italian-anarchy-and-greek-profligacy-lead-to-economic-chaos-in-europe.html
That’s an excellent piece!
That’s an excellent piece!
Didn’t stop the free riders of the banking system creating ever more debt and waiting for that inevitable bailout.
Depreciation? There are more people in Spain writing (with no media success) about electronic-only parallel currency with 1:1 fixed exchange rate.
I think you can read Spanish. Quite long articles, with the interesting bits at the end of them.
Starting from “La europeseta: una moneda cerrada”:
https://www.rebelion.org/noticia.php?id=140527
Why the new currency should be 1:1 fixed (Starting from “Lección tercera”, the rest is a long discussion about plagiarism with other authors):
https://www.farodevigo.es/opinion/2012/03/11/moneda-paralela-senor-vigo-tres-madrid-polemica-lecciones/631387.html
I see very serious side effects of such a policy and it will all be very bad of such a policy. The black market would suffer that might be all that is maintaining some families. Crime will shoot up in response as people struggle to cope.
Also it would cause a run on all the periphery as soon as it was done in one country. Anyone with any money will immediately convert it to another currency and move it offshore. No point in leaving it in a trackable currency. You would then find companies immediately relocating to avoid the same fate.
The europunts or europesetas would be only electronic, national not convertible money.
Spain or Ireland hast to repay its public debt in euros, but why pay the public staff or pensioners only in euros?
Instead of getting more indebted in euros to pay those expenditures,
Spain could pay all those people PARTIALLY in new europesetas, only
valid in Spain. All transactions in notes or coins would be in euros, as
well as external transactions. Taxes would be partially paid in
europesetas.
Advantages: less stress upon public debt. Spain would need less euros,
would receive better ratings from qualification agencies, and could
repay its debt more easily.
The state could buy the part of the toxic assets of the banks in new
europesetas, banks which would use those europesetas to pay part of
their regular expenditures (salaries) and lend credits. A lot of
bussinesses are closing right now due to a lack of credit. They would be
delighted to receive credits in europesetas.
And, of course, electronic money would reduce fraud. No counterfeiting, no black markets, no bank runs/”corralitos”.
Until there is no option of the new currency there will be a bank run, and even more so if the people detect the possibility of such a currency being imposed on them. Also once it is imposed then expect a new alternative currency to be used pretty much like happened in Zimbabwe where the South African rand was used instead. All the solutions you presume assume that no one can bypass it. What will happen is that the rich and those with companies will use transfer pricing schemes to get money out of the country as legally as possible. The majority will robbed in the conversion, as this new currency has no benefits for them. That will bring a revolution even faster. The UK had regular problems when the king debased the currency to pay for the upkeep of the castles.
As for companies being unable to get credit you need to look at why that is the case. First banks are over leveraged so they want to reduce lending so unless big companies are clearing far more than the smaller companies want then there will be problems. Banks want to reduce overall levels of loans not increase them, hence them shutting companies out. The banks also have horrendous hidden losses on their loan books and no loan officer will want to compound their mistakes by lending any more. Many of these companies are probably walking dead already. Here in the UK the banks had lending targets to help small businesses but they failed to meet them especially for small firms. They met the criteria for larger firms, those that really do not need credit overall. Next the other major cost for businesses are property costs and those are still be held too high to support the banks. Rents are too high and the impact throughout the economy is to drain money away from capacity towards rentiers, the banks. Slash rents to levels twenty years ago and have rent controls then it frees up capital for day to day operations.
I’m not able to follow your reasoning. The problems you mention are not possible within this model.
There would be no conversion between euros and europesestas. What would the banks do with europesetas in their balances? They cannot use them to reduce their endebtment in euros, so they would have to use them to pay salaries/expenditures, and/or new credits in europesetas. I guess it’s easier to see when your currency is the euro.
Randall Wray gives a hint of the same idea when talking about a Job Guarantee scheme for Ireland in the penultimate page of this paper:
https://www.levyinstitute.org/pubs/wp_707.pdf
“The first would be to develop a new currency—let’s call it the punt—to be used for government payments of wages in the JG. All levels of government would agree to accept the punt in payment of taxes, fees, and fines. Assume that at government pay offices the punt is accepted at par for euro tax debts. Let us further presume that punts would be supplied only through government payment of wages to JG workers. Since JG workers as well as anyone with a tax due could use the punts to pay taxes, they would soon circulate widely. The government would not make the punt convertible to euros—it would not supply euros when punts are presented—but in private transactions they would trade at close to par because in payment of taxes they are equivalent.”