Lost at Sea: The Euro Needs a Euro Treasury

Bibow, Jörg

doi:10.2139/ssrn.2358070

Cited by 14 publications

(8 citation statements)

References 53 publications

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“…Such governments, however, can always rearrange their institutional arrangements in order to gain the monetary sovereignty required to facilitate any political priority. As for the case of the Eurozone, while under the current framework individual member states are mere currency users and encounter financial constraints, the implementation of a fiscal authority for the Eurozone could solve the institutional issue and facilitate the funding of a JG (Bibow 2013, Cruz-Hidalgo, Ehnts and Tcherneva 2019, Ehnts and Höfgen 2019. As long as the federal government experiences a high degree of monetary sovereignty by issuing its own fiat currency and not promising to exchange this currency into other currencies or precious metals at a fixed rate, the government is able to provide all the funding required for the JG -no matter the magnitude of the nominal costs anticipated.…”

Section: The Job Guarantee: An Outlinementioning

confidence: 99%

The Job Guarantee: Full Employment, Price Stability and Social Progress

Ehnts

Höfgen²

2019

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This paper presents the idea of the Job Guarantee (JG), which is a logical extension of the paradigm of a tax-driven fiat currency. The JG involves the government offering a public purpose-oriented job with a fixed hourly wage and job benefits to anyone willing to work. The JG as a bottom-up approach is locally administered but federally funded. As the analytical lens of MMT reveals, a monetarily sovereign government is always able to provide the spending required. Macroeconomically, the JG works as an automatic countercyclical stabilizer and an excellent tool for aggregated demand management, ensuring the economy is continuously operating at full capacity. On top, the JG uses an employed buffer stock approach as a superior means to maintain price stability. Next to its favourable macroeconomic impacts, the JG offers many social benefits, particularly related to continuous employment, working conditions in the private sector, power relations in the labour market and democracy. While the JG and Universal Basic Income (UBI) are often discussed as comparable, competing policy proposals, the JG addresses more macroeconomic and social issues than the UBI does. This paper concludes that the JG qualifies for being the single most effective policy in order to drive the economy towards continuous full employment and price stability while realizing additional social benefits.

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Section: The Job Guarantee: An Outlinementioning

confidence: 99%

The Job Guarantee: Full Employment, Price Stability and Social Progress

Ehnts

Höfgen²

2019

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“…Lacking other ways to deal with the eurozone crisis, projects that propose how to tackle the issue of national public debts are multiplying. For instance, there are proposals for a European redemption fund that would hold a part of national public debt (Parello and Visco 2012; Bank of Italy 2018a, 35), for of provisions for automatic restructuring (Committeri and Tommasino 2018), for an automatic debt-to-equity swap (Mody 2013) or less-automatic proposals like a debt buyback (Corsetti et al 2015), and, finally, proposals for the creation of a common euro area debt, the so called "blue bonds" (Delpla and von Weizsacker 2010 12 ; see also EU DGIP [2011] and Merler and Pisani-Ferry [2012]), or a euro Treasury (Bibow 2013). Recently EU institutions have put up similar proposals in the form of European sovereign bond-backed securities (for a critical assessment, see Tonveronachi [2018]).…”

Section: The European Conundrummentioning

confidence: 99%

Defaultnomics: Making Sense of the Barro-Ricardo Equivalence in a Financialized World

Esposito

Mastromatteo

2019

SSRN Journal

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The 2008 crisis created a need to rethink many aspects of economic theory, including the role of public intervention in the economy. On this issue, we explore the Barro-Ricardo equivalence, which has played a decisive role in molding the economic policies that fostered the crisis. We analyze the equivalence and its theoretical underpinnings, concluding that: (1) it declares, but then forgets, that it does not matter whether the nature of debt and investment is public or private; (2) its most problematic assumption is the representative agent hypothesis, which does not allow for an explanation of financialization and cannot assess dangers coming from high levels of financial leverage; (3) social wealth cannot be based on any micro-foundation and is linked to the role of the state as provider of financial stability;and (4) default is always the optimal policy for the government, and this remains true even when relaxing many equivalence assumptions. We go on to discuss possible solutions to high levels of public debt in the real world, inferring that no general conclusions are possible and every solution or mix of solutions must be tailored to each specific case. We conclude by connecting different solutions to the political balance of forces in the current era of financialization, using Italy (and, by extension, the eurozone) as a concrete example to better illustrate the discussion.

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“…This includes a mechanism that creates fiscal space and generates the imbalance described in condition (16). In this vein, Bibow (2013) has advocated an EU Treasury where common fiscal space is created to fund public investment. Tonveronachi (2015) has proposed reformed ECB operations that would create a single financial market in the EA and create fiscal space under current EU debt discipline.…”

Section: Inconsistency Of Fiscal Rules With the Savings-debt Constraintmentioning

confidence: 99%

A T-shirt model of savings, debt, and private spending: lessons for the euro area

Terzi

2016

EJEEP

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Notwithstanding the modified ECB practice that saved the day, the euro area is failing to restore economic prosperity. The problem is visibly political, yet an effective solution must be economically viable. This essay articulates the reason behind the prolonged deflationary bias of euro area policies by means of a simple ('T-shirt') model, where private spending depends on desired savings and sustainable indebtedness. This savings-debt constraint means that any policy that inhibits debt also inhibits financial savings, spending, and jobs. After providing a solution to the conundrum of the consequence of savings in a monetary economy, this essay makes a case for reclaiming the fiscal instrument. The EU Commission's belief that it is possible to create jobs without creating new debt underscores a serious conceptual fault and a delusion that the savings-debt constraint to spending can be ignored. As long as policy-makers defy the savings-debt constraint, the euro area will continue to live dangerously.

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Lost at Sea: The Euro Needs a Euro Treasury

Cited by 14 publications

References 53 publications

The Job Guarantee: Full Employment, Price Stability and Social Progress

The Job Guarantee: Full Employment, Price Stability and Social Progress

Defaultnomics: Making Sense of the Barro-Ricardo Equivalence in a Financialized World

A T-shirt model of savings, debt, and private spending: lessons for the euro area

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