This is a whole new world for all advanced countries except one: Japan. It is not the “nice” world of the 1990s, characterized by stable inflation, steady output, fiscal prudence, and a narrow central-bank focus on manipulating short-term interest rates to meet inflation targets. But nor does our turbulent world resemble that of the 1970s, marked by high inflation, volatile output, fiscal profligacy, and excessively accommodative monetary policy.

In today’s world, inflation is very low and is expected to remain so, and monetary authorities enjoy significant credibility, much more than in the past. Advanced countries are headed for a situation in which the distinction between monetary and fiscal policy is merely academic, and debt consolidation is unrealistic.

This has long been the case in Japan, with its very low inflation, negative interest rates, and a public debt-to-GDP ratio of 200 percent, 70 percent of which is held by the central bank. But most countries are not used to facing these problems. Addressing them, and avoiding a deflationary spiral, will require a creative and coordinated approach to monetary and fiscal policy.

The challenge will be particularly profound in the eurozone, which has a common monetary policy but lacks a shared budgetary policy, notwithstanding the new recovery fund. Overcoming it will require an institutional setup that is very different from the one established in the Maastricht Treaty. Europe’s leaders must urgently begin discussing what that setup must be, and how to get there.

The European Central Bank’s (ECB) current strategy review provides an opportunity to address some of the issues at stake. For example, the ECB could update the definition of price stability, so that it has the flexibility to overshoot the inflation target in the short term, thereby compensating for years of undershooting. This would help to prevent long-term inflation expectations from stabilizing at too low a level, resulting in real interest rates that are incompatible with full employment.

One solution could be to adopt nominal GDP targeting. That way, in responding to supply shocks that drive up prices and depress output, the ECB would weigh the two target variables equally. This would discourage policymakers from taking an excessively hawkish stance at a time when a range of factors, from climate change to pandemics to financial crises, threaten to produce many more supply shocks.

But such a change would go only so far. The vital issue, which will most likely demand some new piece of legislation and a departure from the Maastricht Treaty, is the relationship between monetary and fiscal policy. In a unitary state like the United States or the United Kingdom, monetary- and fiscal policy coordination is possible in service of an agreed target, for example, in terms of nominal GDP.

For example, in circumstances when fiscal policy is more effective than monetary policy, such as when interest rates reach their effective lower bound, debt-financed tax cuts could be pursued, with the central bank acting as a buyer of government debt. The shared target, meanwhile, would ensure the credibility of the monetary authority, protecting it from so-called “fiscal dominance”.

In a monetary union, the dynamic is more complicated, making a formal structure for coordination all the more important. Monetary and fiscal policymakers should be working in concert to achieve the right combination of inflation, output, interest rates, and sovereign risk. But such coordination would affect, among other things, the ECB’s bond-buying programme, including how much risk it assumes and the geographical mix of the bonds it purchases.

Should the ECB now be purchasing relatively safe recovery bonds, or leaving those to the market, while directing its purchasing programme toward riskier assets? This is a monetary-policy decision with fiscal consequences. It should not be left to the central bank alone.

What institutional changes could resolve this problem? To begin, the EU must consider the desirability of an independent fiscal authority with which the ECB could coordinate policy. The two bodies would meet regularly to set relevant targets, relating to deficits, interest rates, and prices, and to evaluate whether national policies are aligned with those targets.

The pandemic has upended many existing rules and institutional guidelines. For example, the EU has suspended its limits on fiscal deficits, which most economists think should not be reintroduced any time soon, especially not in their current form. If EU leaders take this as an opportunity to pursue radical, forward-looking change, the COVID-19 upheaval could move the bloc to a better place. Otherwise, conditions could become much worse. Just ask the Japanese.

Lucrezia Reichlin, a former director of research at the European Central Bank, is professor of economics at the London Business School. Copyright: Project Syndicate, 2020.

Source: http://jordantimes.com/opinion/lucrezia-reichlin/avoiding-japanification-europe

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It has been a long time coming. But now, with the prospect of Britain crashing out of the EU without a deal looming large, Jeremy Corbyn has come up with a plan. Finally.

He envisages a no-confidence vote in Prime Minister Boris Johnson as soon as possible. Should Johnson lose, Corbyn would take over as a caretaker prime minister for a short period of time during which he would seek to delay Brexit and call a general election.

After sitting on the fence for so long, Corbyn has now said he would campaign to hold a second Brexit referendum which would include the option to remain.

Even those with a scant interest in Brexit would be forgiven for wondering why it took the leader of the opposition Labour party so long to try and take advantage of what’s been handed to him on a silver platter amid the chaos of Brexit.

But it’s not that simple. To understand why Labour under Jeremy Corbyn has been unable to cash in on the way [former Prime Minister] Theresa May and now Johnson are dealing with the Brexit saga, it’s worth looking at Corbyn’s background and progression within Labour and how he managed to initially galvanize a party still stuck in the post-Tony Blair era.

Read more: Brexit: What’s gone wrong for the UK’s Labour Party?

String of victories

From what many observers perceived to be Labour’s golden years under Blair, the party went into free fall under his successor, Gordon Brown. In the 2010 general election, it lost 91 mandates in Parliament — the party’s biggest loss of seats since 1931. Brown’s successor, Ed Miliband, fared even worse. Labour were voted out of power in 2015.

Enter Corbyn. Against the odds, he managed to pull off three quite remarkable victories in a row. In 2015, with the party in disarray after a disastrous election result, he was elected party leader thanks largely to young activists who paid £3 (€3.25; $3.62 at current rates) to register as Labour supporters and take part in the leadership contest as nonmembers.

Read more: Germany’s SPD rank and file seek Labour’s ‘Corbyn factor’

Once Corbyn was on the ballot, his campaign manager coined the phrase “straight-talking honest politics,” portraying him as an alternative to the career politicians who were his opponents. Having been a Member of Parliament since 1983 and a local councilor before that, it could, of course, be argued that Corbyn, too, was in that mold.

In the wake of the EU referendum in 2016, the party establishment tried to ditch Corbyn for his perceived lukewarm opposition to Brexit. Again, he managed to mobilize young registered supporters, who carried him to another leadership victory. In 2017 he pulled off arguably his biggest coup when Labour won 40% of the vote in the general election.

But that is essentially where the fairy tale ends. While some observers praise Corbyn for sticking to his political principles, others say it’s exactly this kind of perceived stubbornness on Europe that has left Labour as an unfeasible alternative to the Conservatives.

Read more: Opinion: The wrong man at the wrong time

Corbyn’s EU stance

In a nutshell, Corbyn has always been a euroskeptic, as his track record shows:

Corbyn voted for Britain to leave the European Economic Community (EEC) in the 1975 Referendum Act. He opposed the creation of the EU under the Maastricht Treaty and voted against the Lisbon Treaty on more than one occasion in Parliament in 2008.

The day after the referendum in 2016, Corbyn was out of the starting blocks quicker than former Prime Minister May, calling for the immediate implementation of Article 50 — the two-year notice to leave the EU. In December 2016, he voted in Parliament in favor of the UK’s leaving the EU and for the process to start no later than March 31, 2017. In February 2017 he voted in favor of May starting the process of leaving the EU. In the summer of 2017, Corbyn opposed Britain remaining in the single market, even sacking from his team Labour MPs who favored the single market.

A delay to Brexit?

Even now, with a fresh campaign to oust Johnson and prevent a no-deal Brexit, Corbyn’s perceived tepid position on Europe could be his undoing.

Leaving aside the fact that several Tory rebels and other party leaders would struggle to endorse Corbyn (indeed, the leader of the pro-EU Liberal Democrats, Jo Swinson, has already ruled out Corbyn leading an emergency government), the Labour Party itself is split over Brexit and there is no guarantee that it would win a snap election. An election would risk exposing the bitter tensions still further within the party.

Despite Corbyn’s stated intention to campaign for a second referendum, he has never made a secret of the fact that he is, in fact, a “lexiteer” — a leftist who wants to the leave the EU.

Source: https://www.dw.com/en/brexit-cometh-the-hour-cometh-jeremy-corbyn/a-47092781

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We know who our friends are. Source: DPA

Donald Trump is making an intolerable show of himself in Europe. Not only has he cast doubt on America’s commitment to mutual defense under NATO; the US president has also unilaterally withdrawn from the 2015 nuclear agreement between Iran and the five permanent members of the United Nations Security Council, plus Germany and the European Union.

Since then, the Trump administration has unilaterally imposed an embargo on goods deliveries to Iran from any third country, including the other signatories of the agreement. Foreign firms that continue to conduct business in Iran now face the threat of sanctions, and banks that process transactions risk losing access to the US financial system.

Meanwhile, the US has been threatening similar action with respect to the new Nord Stream 2 gas pipeline that will run from Russia to Germany. Congress is considering legislation that allows the Trump administration to impose sanctions on European firms taking part in the project, even though these companies are contractually obliged to see the work through. And, according to Gerhard Schröder, a former German chancellor who now chairs the pipeline project, the US ambassador to Germany has been acting more like an “occupation officer” than like a diplomat.

All told, the Trump administration’s disruptive behavior has left the French and German governments furious. But, beyond fueling anger, Trump’s attacks on other countries’ sovereignty are adding momentum to a new push for European political unification.

Vassals? Not us

It is no secret that Europe is in the midst of an internal economic crisis — a result of the euro saddling southern euro-zone countries with high inflation prior to the 2008 financial crash, which severely reduced their competitiveness within the euro system. These problems have led to the emergence of Euroskeptic nationalist parties and movements across the continent. More recently, the European project has been weakened further by the United Kingdom’s decision to withdraw from the EU.

Against this backdrop, Trump’s actions are actually something of a godsend, because they have forced Europeans to accept that they must stand together in defense of their sovereignty and prosperity. A union of almost 450 million people (after Brexit) cannot allow a country two-thirds its size to treat it like a group of vassal states.

Accordingly, both French President Emmanuel Macron and German Chancellor Angela Merkel declared this month that they support the need to create a joint European army. The best way to understand this effort, said German Minister of Defense Ursula von der Leyen, is as an answer to Trump’s demand that Europeans spend more on defense.

Of course, von der Leyen knows that the formation of an independent European force isn’t really what the US president had in mind. But the German establishment credibly maintains that a European army is meant to supplement and strengthen NATO. The trans-Atlantic alliance will be no less necessary than it was before, nor will European citizens regard their American counterparts with any less sympathy and fellow feeling. The deep historical ties between the US and Europe remain unchanged; everybody knows there will be an America after Trump.

Political union to the fore

Better yet, Europe is once again pursuing political unification with vigor and a sense of collective purpose, and that is how it should be. The European project has long suffered from giving economic integration pride of place while pushing political unification to the backburner. Indeed, France, Italy, the Benelux countries (Belgium, the Netherlands, and Luxembourg), and Germany had agreed to form a European army as early as 1952 under the Framework of the European Defense Community. But the French National Assembly never ratified that treaty, so it never entered into force.

Then came the Maastricht Treaty, which offered a second chance for a political union. Yet France stood in the way once again. The French supported membership of the euro, because they wanted the Mediterranean countries, including themselves, to be able to borrow at the same low rates as Germany on the capital markets. But they successfully resisted the creation of a political union, which is predicated on a central state with a joint army and monopoly on the use of military force.

If France is now serious about merging national armies into a joint defense force under a central EU command — rather than just an intervention force for its former African colonies — Macron could well secure his place in the history books. There is much work to be done. But if it happens, he will have Trump to thank.

Source: https://global.handelsblatt.com/opinion/europe-military-force-hans-werner-sinn-983056

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Luigi Di Maio, of the Five Star Movement, celebrating victory with his supporters in Pomigliano D’Arco, Italy, on Tuesday. CreditCiro Fusco/European Pressphoto Agency

Source: https://www.nytimes.com/2018/03/08/opinion/italy-europe-election.html

The post Want to Understand What Is Wrong With Europe? Look at Italy first appeared on Garner Ted Armstrong Evangelistic Association.