Englund

I find  insider-outsider classification more useful than, let us say, establishment versus anti-establishment, or liberalism versus populism.  I do not believe that populism will endure. But the rules-based multilateral order is crumbling for reasons that have nothing to do with populism.  Many traditional power centres of our democracies — centrist political parties, the mainstream media, some industries — are oligopolies under siege for a reason. After 17 years, this will be my final column for this newspaper. Wolfgang Münchau FT 27 September 2020 https://www.ft.com/content/df167ea5-4750-444e-82ff-0f44b09e72be You know where to find me. The author is director of www.eurointelligence.com https://www.eurointelligence.com

As dedicated followers of fashion, European central bankers have also been following the intellectual trends set by others. When inflation targeting was in vogue in the 1990s, the European Central Bank adopted the new regime and became a paid-up subscriber to the economic theory that lay behind it.  Inflation targeting turned out to be a stunning success, for about a decade. That ended at about the time a series of crises descended on Europe.  The last time the core rate of inflation in the eurozone was above 2 per cent was in 2008. Wolfgang Münchau FT 5 September 2020 The troubling bit is that these forecasts reveal a basic lack of understanding of the underlying inflation process. https://englundmacro.blogspot.com/2020/07/the-troubling-bit-is-that-these.html

Inflation targeting has been successful because it managed to anchor expectations — until it did not. Behind the notion of inflation targeting lies a theoretical model . Wolfgang Munchau FT 19 July 2020 Did inflation targeting fail? Martin Wolf, Financial Times, May 5 2009

The eurozone would be in a better place today if the prime ministers of the south had told the leaders of the north during the eurozone crisis that the unsustainable cannot last. By truth to power, I mean constructive criticism from friends. Europeans are not good at that. We are either pro or anti. Wolfgang Münchau  FT 17 May 2020

The German economic institutes have produced their joint forecast of an improbably precise 4.2 per cent decline in national gross domestic product this year, followed by a 5.8 per cent increase in 2021 The president of the ECB may actually have meant it when she said the bank’s job is not to close spreads.  There are quite a few people in the ECB governing council who believe exactly that. Wolfgang Münchau  FT 12 April 2020

As the German constitutional court keeps reminding us in ruling after ruling, fiscal policy is a national prerogative.  If the nine countries want to go down the mutual path, they can. It is a risky choice, but not nearly as risky as sheltering under the rescue umbrella the eurozone set up after the last crisis. Wolfgang Münchau 29 March 2020 Macron warned that the political reaction after this crisis could kill the European project

The risks are different from those in the last crisis. The eurozone will not fail because of a collapsing bank. But the eurozone is now at greater risk of failing politically than it was then. Ms Lagarde’s statement was not your average rookie mistake. A former managing director of the IMF, she is an experienced crisis manager. The former ECB president’s intervention saved the eurozone, but also raised deep questions about governance. He may have inadvertently given EU leaders an excuse to do nothing about fiscal union.  Without ECB support, more Italians, not just on the extreme right, will ask whether they should leave the  and regain control over their exchange and inflation rate. Wolfgang Münchau FT 15 March 2020

In late 1998, the ECB adopted its first inflation targeting regime. Four years later, it modified it to an annual inflation rate of close to, but below, 2 per cent. The ECB’s research staff have recently published a fascinating 300-page working paper  The surprise result was that the effect on inflation was smaller than previously thought, but the impact on economic growth larger. Wolfgang Münchau FT 26 January 2020 Did inflation targeting fail? Central banks have mostly escaped blame for the crisis. How can it have gone so wrong? Martin Wolf, Financial Times, May 5 2009 Riksbankens mål om 2,0 procents inflation tillkom i all hast för litet mer än 20 år sedan Inflationsmålet skulle inte ha funnits där, om Sverige hade klarat att hålla fast växelkurs. Johan Schück, DN 2015-05-08

We have come to judge austerity mainly in terms of its economic impact. But it is the political fallout from public spending cuts that is most likely to persist. Austerity as a policy is the consequence of a poor understanding of economics coupled with a self-righteous mind and a tendency to spend too much time with your chums at places like Davos.  Centre ground politicians are also not good at admitting mistakes or changing strategy0 Wolfgang Münchau FT 22 December 2019 Göran Persson om 90-talet: Vi gjorde mycket fel, naturligtvis. Kanske borde vi ha sparat lite mindre. SvD 7 maj 2017 Den hemska sanningen om John Hassler, Göran Persson och kronkursförsvaret

- I would classify it as the single most stupid economic policy decision taken by a G7 country in my lifetime.  It artificially constrains the ability of fiscal policy to stabilise the economy at a time when monetary policy has hit the limits.  Wolfgang Münchau FT 27 October 2019

If you are really pro-euro, my advice is to stop treating the euro as an article of faith but fight for its sustainability.  Wolfgang Münchau FT 3 June 2018 I wanted to keep Greece in the eurozone sustainably and was clashing with Germany’s leaders in favor of the debt restructuring that would make this possible .   By crushing our Europeanist government in the summer of 2015, Germany sowed the seeds of today’s bitter harvest:  a majority in Italy’s parliament that dreams of exiting the euro. Yanis Varoufakis Project Syndicate 29 May 2018

Germany has been running current account surpluses of around 8 per cent for the past couple of years. Mr Scholz’s ambition is to push the budget into a surplus of 1 per cent of GDP or higher. Such a surplus would, over time, eradicate all public debt.  At that point Germany will have reached ordo-liberal utopia: it will have become like Nicolae Ceausescu’s Romania, which boasted a surplus of $9bn in 1989, just before the dictator was overthrown. Wolfgang Münchau FT 6 May 2018

The no-bailout rule would suddenly make sense.  This is an environment in which states can default. Wolfgang Münchau, FT 21 May 2017

If we, the liberal establishment, fail to do this, the populists will do it for us. Wolfgang Münchau, FT 18 December 2016

Critics from Britain rightly argue that the monetary union is failing because of a divergence of economic performance. There are now backstops in place but they will not stop member states drifting further apart.  The solution is at the very least a central authority in charge of banking and finance, a small budget and some joint debt instruments.  If politics does not allow this, you have to accept the adage that if something is not sustainable it will come to an end. Wolfgang Münchau, FT 24 July 2016 Stein's Law: If something cannot go on for ever it will stop.  Herbert Stein The Public Interest nr 97 Fall 1989

What we saw — at least here in Europe — is the return of the financial crisis. The toxic twins: the interaction between banks and their sovereigns. Italy’s position may be better than Portugal’s but it is still not sustainable.  Europe’s banking union has failed. No deposit insurance and no government backstop to bail out failing lenders. Wolfgang Münchau, FT, February 15, 2016 The Never-Ending Story: Europe’s Banks Face a Frightening Future http://www.bloomberg.com/news/features/2016-02-16/european-bank-nightmare-far-from-over-as-fines-and-fintech-loom EMU Collapse at IntCom

Today’s politicians and central bankers are fixated with fiscal targets and debt reduction. As in the early 1930s, policy orthodoxy has pathological qualities.  Whenever they run out of things to say, today’s central bankers refer to “structural reforms”, although they never say what precisely such reforms would achieve.  Wolfgang Münchau, FT 7 February 2016 - Visst beror dagens problem i ekonomin i någon mån på missgrepp i slutet av 80-talet och början av 90-talet. Men i grunden har Sverige inte hamnat i en stabiliseringspolitisk kris. Underskottet i statsbudgeten beror djupare sett på att vi försöker överbrygga en konjunkturnedgång när det i själva verket handlar om en grundläggande strukturell förändring. Mats Svegfors, Sv D 1994-09-10

Its origins are perfectly legitimate – a response of Germany’s liberal elites to the breakdown of liberal democracy in 1933.  It was born out of the observation that unfettered liberal systems are inherently unstable, and require rules and government intervention to sustain themselves. The job of the government was not to correct market failures but to set and enforce rules. Today the government is ordoliberal. The opposition is ordoliberal. The universities teach ordoliberal economics.  Macroeconomics in Germany and elsewhere are tantamount to parallel universes. German ordoliberals simply refuse to acknowledge the presence of a liquidity trap where the central bank becomes powerless in affecting market interest rates. Ludwig Erhard, Germany’s revered economics minister in the 1950s, once tried to explain the Great Depression in terms of cartels.  It was an ordoliberal attempt to bring something into their mental framework for which they have no obvious explan...

Let us now assume that I am wrong and that Mr Rajoy and Mr Monti both blink in the next couple of weeks and apply for the OMT, subject to some externally set conditionality. What will the ECB do when a newly elected Italian government takes office next year, and decides to tweak the reform process a little, as the Greeks have been doing recently? Will the ECB really sanction Italy, risking its economic collapse and possibly a financial meltdown in Europe? As the answers to this question are so obvious, there surely must be an incentive for electorates and their elected representatives to call Mr Draghi’s bluff, or at least to push him to the limit. Wolfgang Münchau, Financial Times September 16, 2012 QE would be right for Europe, too - FT.com

Wolfgang Munchau says the sheer degree of incompetence at the top level of the German government is breathtaking Munchau on Germany’s handling of the crisis  In his FT Deutschland column, Wolfgang Munchau makes the point that there is a long tradition of sheer incompetence at the top echelons of the German government, when it comes to the handling of international financial crises.  Even after the various currency crises of the 1970s until the 1990s, there is nobody in the finance ministry, let alone the chancellor, with even a rudimentary understanding of global financial markets, and the subtle interactions between finance and politics.  What is showing in each of the crises that Germany has a fundamentally different understanding of the monetary union, and that both the German public, but in particular the country’s political classes are simply not prepared for life in a monetary union under bad weather.  He also makes the point that...