By Alexander Apostolides on January 27, 2010

Re-hosting a article by Joseph Stiglitz defending Greece

A principled Europe would not leave Greece to bleed
Unless it is one rule for the big and powerful and another for the small, the EU must stand behind Athens' new leadership

Joseph Stiglitz

Greece has been condemned by European officialdom for its huge deficits. "No government or state can expect from us any special treatment," comes the warning from Jean-Claude Trichet, president of the European Central Bank. But Trichet failed to note that there had long been a double standard – in effect two Maastricht treaties, one for the large and powerful countries, another for the smaller and less powerful. When France broke the EU edict not to let debt exceed 3% of GDP, there were strong words, but little else.

Of course, Trichet may claim there is a difference between what Greece and the many other countries that have broken the limits have done. There is a difference of size. But there is also a difference in culpability and consequences. Greece's large deficit has implications for the future of the citizens of Greece, but not for the stability of the euro – unlike a similarly large deficit on the part of one of the larger countries.

A large part of Greece's deficit is the result of the global recession, whose impact was felt acutely by many countries who were not responsible for causing it. However, the global crisis did reveal the deep-rooted structural problems of the Greek economy, which had deteriorated further during the last six years under the previous government. Unfortunately, European leaders have compounded Greece's problems. Their statements have sent the interest rates it has to pay soaring, making it all the more difficult for Greece to tame its deficits.

Instead, they should have welcomed the efforts of Greece's new government. At least it has come clean about the dishonest accounting of its predecessors. Like America's banks, it could have tried to keep up with a system of dishonest accounting, hoping that it would not be caught out. But Greece's new prime minister, George Papandreou, has always stood for honest and transparent government. Europe should be coming to the assistance of this kind of leader, not making his life more difficult.

Greece is among the poorest of the European family. Part of the basis of the success of the European project is a sense of social solidarity, which entails coming to the assistance of those who are less fortunate. When the euro was created, many economists worried about the lack of stability-solidarity funds. If Europe had developed a better solidarity and stabilisation framework, then the deficits in the periphery of Europe might have been smaller and they would have been more able to manage them.

Economic downturns often affect those in the periphery much worse – they are the victims of their neighbours' failures. It is common wisdom that when the US sneezes, Mexico catches a cold. But more recently, this aphorism has mutated: Mexico now catches pneumonia, as its fall in GDP last year showed.

Part of the reason for the success of America's "single market" is that there is this sense of social cohesiveness, and a large federal budget to support it: when one part of the country has difficulties, federal spending can be diverted to help those parts that are in need.

While Europe may not yet have an overall budgetary framework that can fully address weaknesses in one part or the other of the EU, it should at least adopt the principle of "do no harm". For the ECB to announce that it will not accept Greek bonds as collateral would be counterproductive. For the ECB to delegate judgments about the credit-worthiness of Greek bonds to the rating agencies would be more than just irresponsible; it would be reprehensible. Delegation of effective regulatory responsibility to the rating agencies is partly what got the world into the present mess; and the rating agencies' judgments have proven to be deeply flawed – underrating the risk of mortgage backed securities, but consistently overrating the risk of certain sovereign debts.

With Europe's economy still weak, an excessively rapid tightening of its budget deficit would risk throwing Greece into a deep recession. Adjustments always take time, and are always painful. Europe should reframe the short-run budgetary targets it sets for Greece in terms of the structural deficit – what the deficit would have been had the country been able to achieve full employment. In recent years, even the IMF has reframed most countries' budgetary targets in terms of the primary deficit – net of interest payments, recognizing that volatile financial markets mean that interest payments are not really within a country's control.

The EU could and should show support for the honesty and integrity of Greece's government and its efforts not only to bring the budget under control, but to increase transparency of the entire budgetary framework and to reduce corruption. The EU can go further: institutions like the European Investment Bank should undertake countercyclical investments in the country, to offset the deflationary impacts of the budget cuts. Europe should show that it will stand behind Greece, much as the IMF provides support funds for developing countries. The provision of such support might lower interest rates, and make it easier for the country to reach budgetary balance. The EU, the euro, and the premise of European solidarity is being tested again. The measure of Europe will not be in the harshness of its actions, but in the spirit of solidarity that it shows in assisting its neighbour.

America too has unprecedented deficits, as do many countries around the world. Like Obama, Papandreou inherited an economic situation that was not of his making. Both of their predecessors had made mistakes of colossal proportions. Both of their predecessors had engaged in dishonest bookkeeping – but Bush's pale in comparison to that of Papandreou's predecessor. Both were elected on a platform that promised change, and both brought new standards of honesty and transparency to government. Both had their original vision compromised by the exigencies of the economic situation they confronted.

For the sake of European solidarity and democracy, Europe should support Papandreou's efforts in every way they can, not turn their back on the people of Greece who must be convinced that supporting the government's austerity measures is in everyone's best interest. © Guardian News and Media Limited 2010

By Alexander Apostolides on January 07, 2010

Small states and Trade: Lessons from the Great Depression

The interwar growth performance of Malta and Cyprus adds substance to the economists that seem to think of small economic units as disadvantageous. Kuznets argued that small states could weather turbulent economic periods by either relying on their proportionally large resource endowments or by ensuring continued support form a greater economic power. The experience of Cyprus and Malta indicates that things are than in Kuznets' assertion. Cypriot copper mining experienced a serious and severe downturn during the great depression. The natural resource endowment of copper was still subject to global prices, meaning that incomes of small states such as Cyprus are even more vulnerable during uncertain global trade conditions. The low price for copper, combined with the devastation of the agricultural sector due to drought, led to a deep and sustained fall of output during the great depression, wiping out all the per capita growth that took place in the 1920s. Malta might have escaped the worst effects of the great depression due to the expenditure of the British armed forces, but at the same time the relationship had significant negative effects: Maltese economic growth was related to a function of British defence policy, while the military deemed that such expenditure gave it the right to undermine attempts of diversification and political independence if it believed that its interest on the archipelago were under threat. Thus Kuznets supposed refuge for small economies have significant negative repercussions, that affecting their economic performance: a large resource endowment relative to the economy's size exposes the economy to violent downturns at times of global trade turbulence, while a economy dependent on military expenditure might isolate itself from a world recession but expose its self to greater dependency and the undermining of its political and economic independence.

In fact, small island economies are "fair weather" performers: at times of global trade expansion and economic liberalisation, such economies prosper, while during the turbulent interwar period their economic performance was poor. It is not surprising that Easterly and Kray seem to think that small states have "small problems" since their period of analysis is 1960-1995 a period of near uninterrupted trade liberalisation and massive trade expansion. The ability to trade for goods and services enables these economies to overcome the serious disadvantages of their small economic size, particularly in developing manufacturing. During the interwar period it was the manufacturing sector that provided the largest opportunity for productivity enhancements as Europe assimilated the advances of the "second industrial revolution". Yet the islands could not capitalize such advances because of the increasing protectionism in Europe and the Mediterranean. Without trade one could not achieve the minimal efficiency scale for modern manufacturing units; without the modernisation of manufacturing the islands were hampered from achieving the largest productivity advances in the interwar period. Unlike Greece or Turkey, the islands of Malta and Cyprus could not stimulate domestic manufacturing through protectionist measures, since internal market was too small. Small island economies should be the strongest proponents of free trade since the economic history of Cyprus and Malta indicates that protectionism is partly to blame for their poor economic performance in the interwar period.

Kuznets, S., “Economic Growth of Small Nations” in Robinson, E.A.G. Economic Consequences of the Size of Nations, (London: Macmillan, 1960), p.14; Kuznets, Modern…, (1966)

Easterly, W. & Kray, A., “Small States, Small Problems? Income, Growth and Volatility in Small States” World Development, Vol.28, No.11, (2000), pp.2013-2027, p.2014

World Trade Organisation, “Information-World Merchandise Trade 1921-38” as consulted 21 Dec 2009

By Alexander Apostolides on January 05, 2010

Ο συμβολισμός του ψηλότερου κτιρίου στον κόσμο

Ο συμβολισμός του ψηλότερου κτιρίου στον κόσμο
Πολύ εντυπωσιακά τα πλάνα από τα εγκαίνια του ψηλότερου κτιρίου στον κόσμο και οι σχετικές στατιστικές που αφορούν στο μέγεθός του, τα υλικά που χρησιμοποιήθηκαν και το ανθρώπινο δυναμικό που ασχολήθηκε στην κατασκευή του. Δυστυχώς όμως το γεγονός αυτό γίνεται μετά που αποκαλύφτηκε ότι το κρατίδιο αυτό αντιμετωπίζει χρέη δισεκατομμυριών. Εκτός από την πικρή γεύση όμως που αφήνει το άνοιγμα του κτιρίου στη δίνη τεραστίων οικονομικών προβλημάτων, μεγάλη εντύπωση μου έκανε και η μετονομασία του.
Ονομαζόταν καθόλη τη διάρκεια της δημιοργίας του "ο Πύργος του Ντουμπάι" - σύμβολο της (προσδοκούμενης) αυτονομίας του κρατιδίου λόγω της εδραίωσής του ως χρηματοοικονομικό κέντρο. Η ιδέα ήταν να μπορέσει να σταθεί επάξια στους "πνιγμένους στο πετρέλαιο" γειτονές του, έχοντας ανάλογο πλούτο και δύναμη.
Εντέλει όμως οι εξελίξεις το πρόσφτασαν και ονομάζεται πλέον "ο Πύργος Χαλίφα". Χαλίφα είναι ο σείχης του Αμπού Νταμπί και ηγεμόνας των Ηνωμένων Αραβικών Εμιράτων, στα οποία ανήκει και το Ντουμπάι. Η κίνηση αυτή έγινε μετά που το Αμπού Νταμπί αποφάσισε να στηρίξει μέσω εγγυήσεων δισεκατομμυριών το γειτονικό του κρατίδιο έτσι ώστε να μπορέσει αυτό ξεφύγει από την χρηματοοικονομική κρίση στην οποία εισήλθε.
Παντελής Μιτσής
Εν ολίγοις, ο "Πύργος" έγινε από σύμβολο αυτοδυναμίας, η προσοποποίηση της εξάρτησής του... 

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