Integration, Spurious Convergence, and Financial Fragility: A post-Keynesian interpretation of the Spanish crisis Esteban Perez Caldentey and Matias Vernengo

[Working Paper No. 02/2015] The authors argue that the Spanish crisis resulted from a widening deficit in the non-financial corporate sector and a declining trend in profitability under a regime of financial liberalization and loose and unregulated lending practices. WP_02_2015 (Download the full text in PDF format)

Spain: Shaken by crisis Jayati Ghosh

Barcelona is an extraordinary city. It is obviously memorable for its fantastic architecture, dominated by the impressive, quirky, imaginative and joyful creations of Antonio Gaudi and other architects of the “modernista” tradition of the early 20th century. It was home to some of the most interesting artistic innovators of the twentieth century – from the artists Picasso and Joan Miro to the musicians Isaac Albeniz and Enrique Granados. It has amazing food, in which the glories of being near to the sea are adequately reflected, and it is clear that in this city the manifold pleasures of eating and drinking…

Democracy and the Financial Markets Jayati Ghosh

A famous quotation that is commonly attributed to Paul Volcker, former Chairman of the US Federal Reserve, is “In my next life, I want to be all-powerful. So I want to be reborn as the bond market.” Over the past half century, various developing and “emerging” markets were forced to learn about this power of financial markets the hard way, as volatile inflows and outflows of capital (in the debt markets and in stock markets) created boom and bust cycles that often left a trail of devastation in real economies. People in these countries also grew familiar with their own…

The end of Europe? C.P. Chandrasekhar

To many today the question is not whether the Eurozone would survive, but how long it would. A crisis that started in the European periphery, transiting through Ireland and Portugal, had gathered momentum when it reached Spain and Greece. What Ireland and Portugal had signalled was that sovereign debt, or the debt owed by governments, was no longer seen as being safe by definition. There were, of course, two features characteristic of the debt owed by these countries. The first was that it was not in a currency that was only their own, but rather was that of a larger…

Debtors’ Crisis or Creditors’ Crisis? Who Pays for the European Sovereign and Subprime Mortgage Losses? Jan Kregel

In the context of the eurozone’s sovereign debt crisis and the US subprime mortgage crisis, this article looks at the question of how the losses ought to be distributed between borrowers and lenders in cases of debt resolution. The author points out that it is unlikely that debtors can fully bear the losses in a debt resolution. It is argued that the behavior and policy of creditors is just as important a factor to consider in assessing the situation. debtors_crisis (Download the full text in PDF format)

From the Failure of Europe to Possible Growth in the Real Economy Sergio Cesaratto and Lanfranco Turci

The initial enthusiasm of the financial markets over the last European summit was short lived as the new ''kick down the can, grand plan'' to solve the crisis was agreed upon. To bolster the market, the remnants of the famous EFSF 440 billions Euros - which, never forget, was also provided by the periphery countries it was supposed ''to save'' - should be used to leverage new instruments aimed at forming a potential of, say, 1 trillion euros. The idea is to insure 20% of the newly issued sovereign debt of risk countries and to create special purpose vehicles (SPVs)…

Sinking Ship Jayati Ghosh

Talk about re-arranging deck chairs on the Titanic. The economic news from Europe is alarming, no doubt, but it is also ludicrous. At a time of the most severe economic and financial crisis that has affected the region since the early 1930s, politicians from the major countries involved rush around to meeting where they agree, once again, to disagree, and to put forward more of the same policies that are manifestly failing. There is now almost no doubt that the collapse is imminent, of the economic and monetary union that took over half a century to evolve. At least, the…

The Stupidity of Financial Markets Jayati Ghosh

In the global economy, the past few months have been as bizarre as anything that could be imagined. And nowhere is this more evident at the moment than in Europe, where the crazy and unsynchronized tango between financial markets and governments now threatens the lives of ordinary citizens. Consider the fear that is now supposedly spooking the markets, that of the possibility of sovereign default. At the frontline is Greece, the country that is being asked to impose an unbelievably severe austerity package that is bound to cause employment and incomes to spiral downwards, in return for a supposed “improvement”…