Worrying Trends in the Eurozone

Warren Mosler has found signs that the ECB is beginning to collect the right kind of data. Their interpretation of it is still problematic though..

Current policy responses continue to support the same repressive fiscal policies that again look to be driving the otherwise prosperous euro zone into negative GDP growth.

The glimmer of hope may be that they have discovered the sector balance approach.

The next step in the right direction would be a recognition of the actual causations.

From Professor Tezi:

The August 2011 Monthly Bulletin of the European Central Bank presents an interesting chart of financial balances of different sectors in the euro area.


The figure shows how rising deficits in Europe in 2008 and 2009 have produced higher net financial savings in the private sector. This is evidence that automatic (anti-cyclical) stabilizers worked as usual: as growth declines, or goes negative, tax revenues fall, government deficits increase, and this stops the economy from falling further. This can only work, however, until market-constrained governments in the euro area begin acting pro-cyclically. Governments acting pro-cyclically during recessions means that deficits reductions will reduce private savings below the desired level, and this means a further fall of demand and incomes. Looking at 2010, and considering that the euro area’s current account balance is marginally negative, there is evidence of this pro-cyclical effect, as government deficits declined, and net private lending inevitably declined.

What is remarkable is how the ECB interprets the chart:…

Full article in the Centre of the Universe

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