Why the ECB independence is detrimental in times of crisis

“the purposedly low level of direct political oversight in the area of central banking means that it is highly likely that independent central banks will have an intentionally high degree of agency slack [i.e.: in the form of slippage or shirking procedural problems identified in the Principal agent literature]
“such delegation may produce monetary authorities who pursue the goal of low inflation with too much zeal and thus have the potential to stave off needed growth and employment in the economy, without much leeway for the principals (i.e.: the governments) to correct this policy drift” (Mc Namara, 2002)
Precisely what’s happening now with the ECB… the benefits of conservative central bank independence do not seem to have taken into account the risk of the concurrence of stable low inflation but falling output…

Are people unemployed because safety nets are too generous?

Brad Delong rebutes this claim: if people increasingly chose to become or remain unemployed because of (more) generous safety nets, what we should see is a bigger ‘choice set’ and more people quitting their jobs. 
What we see instead is that the unemployed feel more constrained, spend less and are more uncertain about the future in the US. Moreover, the number of people quitting their jobs has actually fallen since the beginning of the crisis…

ECB independence and democracy

“The legislature cannot transfer the power of making laws to any other hands; for being but a delegated power from the people, they who have pass it over to others” (Locke in the Second Treatise on Civil Government)… what about monetary policy?

Germany and the Eurozone

Is Germany becoming part of the Eurozone periphery? Not quite but as Andrew Watt reports, the recent weak Bond Auction (35% of its 10 years bonds failed to get bids) is worrying on a number of counts.
An optimistic perspective would suggest that this may lead to the realisation that some structural changes are required thereby giving the impetus to long awaited regulatory changes and necessary reflationary policies.
Current austerity policies have been severely misguided not only because of their regressive impacts but also because of their self-defeating logic.

Periphery countries have in any case few tools at their disposal to address the crisis. The difficulties this entails is nothing new as Germany faced similar problems in 1931.
Of course there is a more fundamental problem a common monetary union which is that the Eurozone wide nominal interest rate will have different real values in differet Eurozone members (Hancke and Rhodes, 2005). Where inflation is high (e.g.: Greece) the real rate of interest rate will be comparatively lower than where inflation is low (e.g.: Germany).
Faced with different real interest rates, these countries will further deviate. Even with the heroic assumption that the Periphery would become as productive as the core of EMU, divergence in inflationary dynamics would ensure that competitiveness is not forthcoming in the Periphery. In other words, the institutional set up of the European Monetary Union is systemically unstable and this has nothing to do with the presumed inability of the Periphery to sort out their budget (on this point, note that whether Greece has taken some liberty with its statistics has recently been contested).

De Grauwe "Who cares about the survival of the eurozone?"

“CEPS Senior Fellow Paul De Grauwe expresses astonishment in this new Commentary at the continued insistence in both Brussels and Frankfurt on budgetary austerity as the necessary and sufficient response to stop the government debt crisis in the eurozone. In his view, the austerity programmes should be softened and spread over a longer period of time, allowing the automatic stabilisers in the national budgets to prevent the economies from spiralling downwards. Furthermore, he reiterates his argument that the ECB should take up its role of lender of last resort in the government bond markets of illiquid but solvent member countries of the eurozone.”

"Back to the future": Privatisation as a solution to problems

“The world bank recommended liquidation or divestiture of state assets in twenty five of the thirty eight structural adjustment loans it made to developing countries between 1980 and 1986….and increased market orientation of state firms in thirty six of the thirty eight loans”
(Feigenbaum and Henig, 1994, page 199: The political underpinnings of privatization: a typology)