Austerity policies do more harm than good, IMF study concludes 

[…] in practice, “episodes of fiscal consolidation have been followed, on average, by drops rather than by expansions in output. On average, a consolidation of 1% of GDP increases the long-term unemployment rate by 0.6 percentage points.”


They concluded that the increase in inequality threatened to be self-defeating. “The increase in inequality engendered by financial openness and austerity might itself undercut growth, the very thing that the neoliberal agenda is intent on boosting. There is now strong evidence that inequality can significantly lower both the level and the durability of growth.”

Source: Austerity policies do more harm than good, IMF study concludes | Business | The Guardian

IMF Proposes Eurozone Debt Relief for Greece Until 2040 – WSJ

The International Monetary Fund is pressing the eurozone to let Greece skip paying interest or principal on bailout loans until 2040, say officials familiar with the talks—a demand that goes far beyond what Greece’s European creditors have said they are willing to do.

Source: IMF Proposes Eurozone Debt Relief for Greece Until 2040 – WSJ

The Greek saga would be funny, if it wouldn’t be so tragic…

IMF urges more spending to boost growth | Business | The Guardian

“Growth-friendly fiscal policy is needed in all countries,” it said, adding that accommodative monetary policies should continue in several advanced economies and structural reforms should be implemented with policies that support demand and help displaced workers.

Source: IMF urges more spending to boost growth | Business | The Guardian

All countries. Except Greece.

Lord Mervyn King: ‘Forgive them their debts’ is not the answer

Lord Mervyn King: ‘Forgive them their debts’ is not the answer

Excellent analysis from the most revered central banker in the UK, arguing that eurozone is about to break up because of the conflict between democracy at the national level and the central elite that proves incapable to steer the union towards sustainable economics.

My bet is still against the Euro.

Market turmoil: Wall Street falls; negative rates not off the table says Yellen – live | Business | The Guardian

Kit Juckes, top currency strategist at Societe Generale, reckons that the market turmoil has been sparked by a loss of faith in central bankers.

In a new note to clients, he writes:

We’ve relied on central bankers to fix all the world’s woes, when all they could really do was to get the global financial system back on an even keel. Keeping policy too easy for too long and boosting asset markets in the vain hope that this would deliver a sustainable demand pick-up has meant that even a timid attempt at normalising Fed policy has caused two months of mayhem. Now, a growing realisation that central banks’ powers are waning has prompted a rush into safe havens.

And, of course, years of ultra-loose monetary policy have also led us to this point:

We’re just getting the stickers saying ‘Easy Money may cause harmful side-effects if consumed persistently for long periods’ printed….

Source: Market turmoil: Wall Street falls; negative rates not off the table says Yellen – live | Business | The Guardian

IMF’s hindsight about austerity in 5 Eurozone countries at once

Blanket austerity across the crisis-hit countries of the eurozone was self-defeating. Germany’s analysis of what needed to be done was wrong. The European Central Bank (ECB) was slow to come up with a stimulus package designed to offset the demand-sapping impact of wage cuts.

Those were the main messages of an important International Monetary Fund (IMF) intervention into the debate about how the eurozone should have responded to the problems that affected five of its members – Greece, Ireland, Portugal, Spain and Italy. This quintet accounts for 30% of eurozone output.

The traditional IMF cure for a country in trouble is a solid dose of structural adjustment – tax cuts, privatisation, reforms of the labour market – designed to make the domestic economy more efficient, coupled with a devaluation that makes exports cheaper and imports dearer.

This recipe was obviously not available to countries inside the eurozone because they all share the same currency. Instead, the recovery plan involved internal devaluation, making an economy more competitive through a reduction in costs. Given that pay is the biggest element of these costs, it requires wage cuts – and thumping ones at that.

The IMF paper asks whether this policy actually works. Its conclusion is that if a single country cuts wages, the effect is positive both for that economy and for the eurozone as a whole.

But if five countries adopt the same strategy at once, there has to be action from the central bank to offset the demand-sapping wage cuts. Put simply, if millions of workers across Europe have less money in their pockets, they will consume less. That will affect their own economies and the economies of other non-crisis eurozone countries that export to them.

Source: IMF’s hindsight says it was right to advocate QE in the eurozone | Business | The Guardian