Here’s a useful timeline of events from the Guardian.

It’s worth pointing out that prior to the total breakdown, the Argentine government pursued a strategy of austerity in the midst of a severe recession in order to access IMF funds. We’re seeing the same story play out in Greece, only with the Troika playing the role of the IMF.

Six months before the street forced the Argentine government out of office, they opted for their own version of the fiscal pact. Explained Barry Eichengreen:

Domingo Cavallo, Lopez-Murphy’s successor as economy minister and architect of the Argentine currency board, proposed a zero-deficit law mandating that public spending (inclusive of interest payments) be cut to the level of revenues. The Congress quickly concurred. Compliance required sharp cuts in non-interest spending (some state salaries and pensions were cut by 13 per cent), and the predictable political backlash immediately raised questions about the sustainability of these measures.

This was a clear case of an escalating commitment to a losing course of action. It was a mistake to keep kicking the can down the road. The (apologetic) IMF note from 2003, “Lessons from the Crisis in Argentina” (approved by Tim Geithner) concluded:

With regard to crisis resolution, the Argentine crisis illustrates the importance of  timely debt restructuring in cases in which the debt dynamics have become irreversible. Once a debt restructuring has become unavoidable, measures to delay it are likely to raise the costs  of the crisis and further complicate its resolution.

To verify just how little has been learned, we can turn to a terrific piece by Stiglitz from a decade ago, “Argentina’s Lessons“, which is worth quoting extensively:

You ignore social and political contexts at your peril. Any government that follows policies which leave large fractions of the population unemployed or underemployed is failing in its primary mission…

A single-minded focus on inflation – without a concern for unemployment or growth – is risky…

One seldom restores economic strength – or confidence – with policies that force an economy into a deep recession. For insisting on contractionary policies, the IMF bears its great culpability…

Argentina’s crisis should remind us of the pressing need to reform the global financial system – and thorough reform of the IMF is where we must begin.

P.S. This is a very interesting blow-by-blow from a NBER conference on Argentina in July of 2002 (and here are the background papers).

My favourite quote comes from a paper by Ricardo Caballero and Rudi Dornbusch, “Argentina: A Rescue Plan That Works“:

Argentina now must give up much of its monetary, fiscal, regulatory and asset management sovereignty for an extended period, say five years.

No matter where the crisis happens, there will always be economists willing to call for the establishment of protectorates and the restriction of democracy.

This interview is part of a project on youth unemployment in Europe run by the Friedrich-Ebert-Stiftung and Social Europe Journal

That way his so-called “attack” on private equity is neither a personal attack on Mitt Romney nor a generalized attack on American business.

It’s an attack on a particular kind of capitalism that Romney and JPMorgan both practice: Using other peoples’ money to make big bets which, if they go wrong, can wreak havoc on the economy.

It’s the substitution of casino capitalism for real capitalism, the dominance of the betting parlor over the real business of America, financial innovation rather than product innovation.

It’s been terrible for the American economy and for our democracy.

It’s also why Obama has to come out swinging about JPMorgan. The JPMorgan Chase debacle would have been prevented if the Volcker Rule were sufficiently strict, prohibiting banks from using commercial deposits to make bets except very specific offsetting bets (hedges) on narrow classes of trades.

But Jamie Dimon and JPMorgan have been lobbying like mad to loosen the Volcker Rule and widen that exception to include the very kind of reckless bets JPMorgan made. And they’re still at it, as evidenced by Dimon’s current claim that the rule that eventually emerges would allow those bets.

As a practical matter, the Volcker Rule is hopeless. It was intended to be Glass-Steagall lite — a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance — any exception — will be stretched beyond recognition by the big banks.

So much money can be made when these bets turn out well that the big banks will stop at nothing to keep the spigot open.

There’s no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate. We also need to heed the recent advice of the Dallas branch of the Federal Reserve, and break them up.

At the same time, there’s no point to the “carried interest” loophole that allows private-equity managers like Mitt Romney to treat their incomes as capital gains, taxed at only 15 percent, when they’ve risked no money of their own.

If private equity were good for America it wouldn’t need this or the other tax preference it depends on, elevating debt over equity. But the private equity industry has huge political clout, which is why these tax preferences remain.

Get it? Bain Capital and JPMorgan are parts of the same problem. The President should be leading the charge against both.

This blog was first published on Robert Reich’s Blog

This interview is part of a project on youth unemployment in Europe run by the Friedrich-Ebert-Stiftung and Social Europe Journal

Dr Ekkehard Ernst, head of the ILO’s Employment Trends Unit, said countries with the most acute problems such as Spain and Greece must try to stimulate their economies rather than reduce government spending.

“What is quite obvious with youth unemployment rates of over 50 per cent in these countries is the first thing that needs to be done is get jobs back … and that can only be done if you stimulate the economy, for instance through infrastructure programmes, which are very job rich,” he said.

Fiscal retrenchment in these countries is exacerbating youth unemployment, he argued. “We have always been of the opinion that these really strict austerity programmes … are making the problem worse.”

Developed countries and the European Union have experienced the steepest rise in youth unemployment – which the ILO defines as ages 15 to 24 – since the financial crisis. Youth unemployment in this country grouping will reach 18 per cent this year and ease to 16 per cent by 2016, the ILO forecast, still much higher than the 2007’s rate of 12.5 per cent.

If you want to hear about the problem from the ILO itself just watch the video below:

In the European Union in particular, recent developments in youth unemployment have been dramatic as Eurostat data shows:

Youth unemployment rates in the EU 27 and the Eurozone

The recent developments are indeed a disaster and you might also call the situation a political scandal. How is it possible that more than one in five young people in Europe have no job and so many more are working in precarious circumstances? How is it possible that the policy direction sold as the way out of the Eurozone crisis (the disastrous austerity policies) have the effect of causing more than 50% youth unemployment in Greece and Spain? Against this backdrop is it really a surprise that radical fringe parties on the right and the left are gaining ground across Europe?

It is high time to get a grip on the issue. For this reason the Friedrich-Ebert-Stiftung and Social Europe Journal are running a series of articles, interviews and commentaries in the coming months which will look at the issue in general as well as into specific situations in EU member states. We aim to present detailed analyses of national circumstances as well as general trends. On this basis, we hope to develop more targeted ideas to address this urgent problem.

We cannot afford a lost generation in Europe. We must tackle and solve the problem now!

Leszek Balcerowicz appeared last night on the political chat show hosted by Tomasz Lis, where he repeated his long-held mantra that only further liberalisation and austerity could ensure Poland’s long-term economic success.

In the interview Balcerowicz repeated two old myths, that are used to show that there really is no alternative to the policies of economic liberalism:

- Firstly he argued that one of the biggest threats to the Polish economy is its high level of public debt (presently around 54% of GDP) and budget deficit (over 7%). He explained that ‘despite’ Poland’s positive economic growth over the past few years, its deficits and debt have continued to grow.

Perhaps we could turn this around, and state that Poland has grown because it has allowed some expansion of its debts/deficits? These are still way below the European average, and the ticking of a debt time-bomb sounds loudest in the heads of those who are focused almost entirely on this one aspect of economic policy. During the past few years public investment has risen from 4.2% of GDP to 5.6% and the government has avoided an all out policy of austerity (much to the disgust of Balcerowicz) similar to that being pursued in other European countries.

With Balcerowicz ruling out any return to more progressive taxation policies in Poland, his anti-deficit programme relies almost entirely upon cutting public and social spending. This policy would lead to social and economic regression, not development.

- The second myth being spread by Balcerowicz is that if the country does not act fast and decisively, then the bond-markets will punish Poland and the cost of its borrowing and thus overall level of debt will rise. The assumption is that bond-markets reward public spending cuts and punish over-spending. However, when we move away from the text-books of dogma, we find that this is actually not the case. For example in France since the election of Francois Hollande, bond yields have actually fallen; as they have in Germany that itself has diverged from the policies of austerity. In contrast the GIPS economies (Greece, Ireland, Italy, Portugal and Spain) the bond markets have fallen (causing their interest rates to raise) after introducing harsh austerity programmes.

A programme of austerity in Poland would most likely lead to an economic contraction that in turn would see the country’s bond markets decline.

For more on the bond markets in Europe, see this interesting article from Socialist Economic Bulletin.

This blog was first published on Beyond the Transition

We need a sanity-check up in the Eurotower, not down in the streets of Athens. We know some bruising internal politics is going on in Frankfurt (hence the resignations of Weber and Stark and the ouster of Bini Smaghi), but we deserve to know more about the ECB’s decision making procedures. The future of the eurozone depends on a coalition of pragmatists decisively toppling the hard money fundamentalists. This fundamentalist mindset is capable of generating a new Argentina; a popular revolt would be the logical response to a total breakdown, not its cause.

Let’s recall the terms in which Domingo Cavallo, father of convertibility and the corralito, defended the Euro:

By reading economic theory I was convinced by those who argue that the only target of monetary policy should be price stability and that monetary policy is completely ineffective in getting real results for the economy. Therefore, monetary policy should not be used to dampen the business circle or try to affect the real interest rates, unemployment or competitiveness. The instruments and the policies to be used to induce real effects into the economy should be others, not monetary tools.

This is a great summary of the mindset of a price stability diehard. Cavallo’s position is reminiscent of Jean-Claude Trichet, who insisted:

We have delivered price stability over the first 12 years of the Euro – impeccably! Impeccably!…I would very much like to hear congratulations for an institution which has delivered price stability…

This represents the same disconnect from reality on the part of economic policymakers that led to the Argentine breakdown. At this crucial juncture in the eurocrisis, we need to know more about the ECB Governing Council’s inner workings  to see how close we are to a disaster brought on by the ultras. For this to happen, the ECB must follow the lead of the US Federal Reserve, the Bank of Japan, and the Bank of England and publish its minutes. The present lack of transparency is an aberration.

Luc Coene, governor of the Belgian central bank recently said of this practice. “I wouldn’t change anything.” Regarding crucial Emergency Liquidity Assitance (ELA) he added: “You don’t say when you are in an emergency situation, because then you make the situation worse. So I really don’t see the usefulness of being more transparent.”

When the ECB Governing Council came to Barcelona a few weeks ago, it needed overwhelming police protection and the Schengen treaty was temporarily suspended. This is their style: opaque, unaccountable, and without popular consent.

This love of secrecy has undermined democracy in Europe. Elected governments have already been toppled and sovereign constitutions modified on account of the ECB’s shadowy dictates. We have now seen, time and time again, how the ECB manages to control spreads when the markets begin to panic. It is becoming clearer that the ultimate blackmailers are not the financial markets but rather the central bankers in Frankfurt.

The same emergency measures that are being contemplated in the case of a Greek exit from the eurozone could be deployed today, at a lower cost. Had they been introduced two years ago, millions of Europeans would have avoided these years of unnecessary austerity. The citizens of the eurozone paying the costs of massive errors in policy brought on by a senseless dogmatism. We had best hope and assume that the peoples of Europe are not playing a game of chicken against a clique of ideological kamikazes.

I say “at least nine” because first quarter data are not yet available for seven countries, five of which (DK, IE, MT, SL and SE) had negative growth in the last three months of 2011 and so may well also be in recession. And on any sensible reading we must add Hungary which was stagnant for the last three quarters of 2011 and suffered a thumping 1.3% contraction in the first three months of this year.

Once all the data is in, we will see that as many as half of the 27 EU member states are in recession.

The euro area and EU27 as a whole only just missed a technical recession, with output unchanged in the first quarter following a 0.3% drop in the fourth quarter of last year. This was virtually solely due to the 0.5% growth achieved by Germany, which represents about 30% of the euro area.

Coming on top of the recent dramatic deepening of the political crisis in Greece and the election of Francois Hollande, and a purchasing manager index pointing to worsening near-term prospects (including for Germany), these figures only underline the urgent need for decisive measures to actively stimulate the European economy. Pious words and pseudo solutions (aka ‘structural’ reforms) will not do.

Paul Krugman might have it right when sequenced this:

1. Greek euro exit, very possibly next month.

2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.

3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.

4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:

4b. End of the euro.

What can still be done to avoid disaster? As Greece moves towards a second election the only real asset is that the vast majority of Greeks still want to stay in the Euro. The EU Council meeting on 23rd May needs to change course and give the pro-Euro political parties something to work with (a programme for growth and jobs above all). The Greek state has to be rebuild from scratch as people more knowledgable about the country than I am tell me and this cannot be done over night and whilst in an economic depression with record unemployment levels. It looks more like Greece is in for a decade of structural changes and rebuilding.

If the pro-Euro parties can present such a change of course to the people and the election is boiled down to the question that is effectively underlying the poll: Does Greece want to stay in the Euro? Then, maybe then, there is a chance to set Greece on a workable political trajectory and keep the Eurozone together.

If such change is not on offer we might see the end of the Euro as we know it even before the summer break.

Just to remind you, the piece ended with a musing:

Some people reckon that the collapse of the Soviet Union was triggered by Reagan involving Gorbachev in an arms chase the Soviet economy couldn’t enter without becoming bankrupt. Watching the already exorbitant yet still fast rising federal debt of the US, one may feel excused if wondering whether Bin Laden and his successors might have managed to take a hint and learn the lesson, and are set to repeat Reagan’s feat…”

The “underwear bomber” who smuggled the sample of the successive terrorist Wunderwaffe and whose name has not been disclosed, was revealed to be a Saudi secret service and CIA agent who managed to penetrate an Al Qaeda cell and now is being debriefed in secure hiding.

Of the new threat to the world security opinions of experts are varied, but consensual on one point: revision of the present airport security equipment is imperative. The New York Timessaid it had been designed by “the group’s top explosives experts” to be undetectable by airport screening measures, particularly metal detectors. Experts suggested airport body scanners, which use light doses of radiation to scan through a passenger’s clothes, may have been able to detect an “anomaly” such as the device, which could then be further examined in a hands-on, pat down search. However, the scanners have not been deployed in all airports across the US and are in very limited use elsewhere. Producers of anti-terrorist weapons, keep your order books ready. Guardians of national treasuries, keep the vaults open…