A new deal is in the works in order to save the eurozone. Judging by rumors, it's not a very good one. No mention of a possibility of establishing the ECB as lender of last resort; no mention of the possibility of eurobonds; plans of establishing credible commitment mechanisms to keeping budget deficits below 3% of GDP; some sort of risk-sharing agreement in the form of an overall debt guarantee; and - last but not least - plans of some sort of credible commitment to not force private sector bondholders to take any losses on any future eurozone bailouts. Now how is a market supposed to work if lenders are sheltered from experiencing negative consequences of bad lending decisions? (The question is rhetorical.) Also, how is the debt guarantee supposed to work? The eurozone doesn't have enough funds to guarantee the debt of, say, Italy without that debt having gone some serious restructuring; and a restructuring of Italian debt under the assumption that private creditors must get 100 eurocents on the euro is economically and politically impossible--the necessary austerity measures would be so severe that it would make much more sense for Italy to simply suffer the consequences of defaulting and leaving the eurozone unilaterally.
So, the Polish government supports the deal unreservedly. On the domestic front, the arguments it offers in favor of it are nothing short of inane. The inanity of them, however, will have to wait until another post. What irks me even more at this moment is the fact that the opposition's response to those shallow arguments are arguments that are generally much, much stupider than what they're criticizing. Here's a small sample.
In a TV interview, the leader of the largest opposition party argued that concerns about the devastating effects a severe recession in the eurozone would have on Polish economy are much exaggerated because "Poland's exports aren't large in relation to its GDP". (The ratio is about 35%, in case you're wondering. And this was said by a guy who was at one point a prime minister, for Pete's sake. Also, below the fold you can find a chart that shows where that 35% locates Poland among OECD countries.)
In another interview, that same guy said that the government's plans of increasing the retirement age for women to 67 years is a terrible idea because Germany is doing the same thing and being Germany's copycats shows our government's "psychological dependence" on our neighbors. How's that for a policy rule: The Germans are doing it, so we can't.
Or how about this: the main economic writer in Poland's largest opposition media outlet begins his essay about the eurozone crisis with the following:
These arguments aren't just misguided. They're laughably ignorant.
And then another annoying one: we can't have a fiscal union because that would mean member countries would lose some of their sovereignty. True enough, but then again, countries give up some of their sovereignty left and right, lots of times voluntarily and to their own benefit. Entering a free trade agreement means losing a bit of your sovereignty (namely, sovereignty to set tariffs to whatever you damn well please). And losing that bit of your sovereignty happens to make you better off. I also find it interesting that those same politicians who decry the loss of independence that comes with a voluntary contractual agreement, never seem to have a problem with any type of policy that increases public debt (at least in Poland they don't). Hey, genius: when you take out a loan, what do you think happens to your sovereignty?
Anyway, rant's over for now. The chart I was talking about is below the fold.
(Source: World Development Indicators.)
So, the Polish government supports the deal unreservedly. On the domestic front, the arguments it offers in favor of it are nothing short of inane. The inanity of them, however, will have to wait until another post. What irks me even more at this moment is the fact that the opposition's response to those shallow arguments are arguments that are generally much, much stupider than what they're criticizing. Here's a small sample.
In a TV interview, the leader of the largest opposition party argued that concerns about the devastating effects a severe recession in the eurozone would have on Polish economy are much exaggerated because "Poland's exports aren't large in relation to its GDP". (The ratio is about 35%, in case you're wondering. And this was said by a guy who was at one point a prime minister, for Pete's sake. Also, below the fold you can find a chart that shows where that 35% locates Poland among OECD countries.)
In another interview, that same guy said that the government's plans of increasing the retirement age for women to 67 years is a terrible idea because Germany is doing the same thing and being Germany's copycats shows our government's "psychological dependence" on our neighbors. How's that for a policy rule: The Germans are doing it, so we can't.
Or how about this: the main economic writer in Poland's largest opposition media outlet begins his essay about the eurozone crisis with the following:
Germany's annual trade surplus of 130 billion euros has to come from somewhere. It comes at the expense of deficits, debt, and eventual bankruptcy of Greece, Portugal, Ireland, Spain and Italy.In other words, he reveals that he doesn't know what trade surplus is, and can't tell the difference between current account deficit and public debt (hey, genius: how come Germany is in debt to about 84% of its GDP even though it's running all these surpluses?).
These arguments aren't just misguided. They're laughably ignorant.
And then another annoying one: we can't have a fiscal union because that would mean member countries would lose some of their sovereignty. True enough, but then again, countries give up some of their sovereignty left and right, lots of times voluntarily and to their own benefit. Entering a free trade agreement means losing a bit of your sovereignty (namely, sovereignty to set tariffs to whatever you damn well please). And losing that bit of your sovereignty happens to make you better off. I also find it interesting that those same politicians who decry the loss of independence that comes with a voluntary contractual agreement, never seem to have a problem with any type of policy that increases public debt (at least in Poland they don't). Hey, genius: when you take out a loan, what do you think happens to your sovereignty?
Anyway, rant's over for now. The chart I was talking about is below the fold.
(Source: World Development Indicators.)
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