Sunday, October 27, 2013

The future of Europe

Drawing made by my daughter Belle after a photo of 1967 when young people in Europe were full of energy and optimism.
In July 2013, FONDAD organised a conference on the future of the euro and Europe at the Dutch central bank in Amsterdam (De Nederlandsche Bank) that was attended by officials and academics. It was a closed meeting of a small group of experts exchanging views.

In August, September and October I was six weeks in Latin America for a book my wife and I are writing on ports and the world economy and upon my return, after I had done some follow-up to that trip, I resumed my readings on internet about the current state of thinking and acting on the world financial system and the future of Europe.

A week ago I received from one of my friends of the FONDAD network, Avinash Persaud, an article to be published in the Financial Times, Bail-ins are no better than fool's gold. I circulated it among the participants of the July Conference at the Dutch central bank and a few others. That prompted reactions and I circulated more articles, the last one being a speech George Soros gave at a conference in Kiel on the future of Europe.

When I circulated these articles over the past week, I accompanied them by short letters. To share with you some of my thoughts on the world economic system and Europe I copy those letters below.

22 October 2013
Below is a piece by Avinash Persaud, partly inspired by the FONDAD conference held at De Nederlandsche Bank in July.
After a quick reading my initial comment is that, in my view, financial crises are, first of all, a result of policy failure (rather than market failure), and that boom-bust cycles can be prevented by establishing a better international monetary and global financial system, and by good countercyclical policies.
I fully agree with Avi that we do not need bail-ins if we prevent systemic crises. In my view it is a shame that, say during the last decades, evitable systemic crises have not been prevented. Crisis prevention should have become a priority for policymakers. Policymakers should have listened to the warnings Bill White and Avinash and others made many years before the current crisis started in 2007. It is a shame they did not.
Jan Joost

23 October 2013
For those of you who are not familiar with Bill White's analysis and warning of systemic crisis many years before it erupted in 2007, here is a piece that summarises Bill's role. I assume it is based on a long article that was published earlier by Der Spiegel. You may agree or disagree with the last para of the piece that follows (arguing that central bankers should step back and let the free market control financial activities).

27 October 2013
I recognise some of my own thinking in Soros' recent speech on the future of Europe (see below) and agree with him that Europe's creditor countries (including the Netherlands) are in a position to create a more hopeful and more efficient Europe.
In my view, Europe could become again an inspiring example for the world -- if it maintains its social ideals, its social system and creates more effective economic policies, for the sake of Europe and for the world at large.
Large companies are thinking and acting locally and globally, and people and governments in Europe and elsewhere should do that as well. It would be a shame if Europe drowned in its own impotence and self-created problems catering at nationalism and xenophobia.
I apologise for sending you during a week so many articles and bothering you with my own beliefs and intellectual and social anger, but I hope you will forgive me and take into account that I was in Latin America for six weeks (for a new book I am writing with my wife on ports and the world economy) and gradually updated myself by reading old and new news.
Have a nice Sunday,
Jan Joost

28 October 2013
I hope the German and Dutch officials are going to move, but I doubt they will and I am almost sure that if they move they will do so insufficiently. The dogmas among the officials and the economic interests of the companies and better-off citizens (not only in Germany and Holland) are strong and the politicians and technocrats with other, wiser views are weak. Also, there is too little wisdom and too little pressure coming from academics; many of them sharing the same dogmatic ideas about proper economic policies and systems. I remember Robert Triffin once was saying to me, with a sad and lightly angry expression on his face, that most of his academic colleagues were whitewashing policies rather than criticising them and suggesting alternative policies. 
Yours, Jan Joost