Ülo Ennuste Economics

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NB FT 14. XII 09 Comment to Münchau by me

European farce descends into Greek tragedy

By Wolfgang Münchau

Published: December 13 2009 18:27 | Last updated: December 13 2009 18:27

I almost fell off my chair when I heard Angela Merkel say that the European Union might sometimes have to take charge of the fiscal policies of highly indebted members. Does this mean that the German chancellor is abandoning her attachment to a rules-based system of fiscal policy co-ordination? Probably not quite. If I interpret her brief statement correctly, she is only talking about times of crisis. Nevertheless, this is probably the most far-reaching economic governance proposal I have heard coming out of Germany.



Ennuste | December 14 8:19am | 

By the way, there is also the same kind “nice whether” phenomenon trouble with the extant Maastricht inflation criterion: in present form it is also non-transparent and technically defective, and with that may cause for instance for Estonia irretrievable socio-economic and credibility losses.

It seems at the moment the Estonian Government is incompetently in the end of this year deflatening the country dawn to fulfill the first “hard” part of the inflation criterion (level of inflation < i+1.5%, i – average three-best country inflation), thereby the second “soft” part of it (stability and sustainability of prices) stays almost certainly economic-theoretically unfulfilled, and so also according to many political interpretations.

The trouble is that Estonian ruling macro-economic experts are mainly not competent enough to understand that the second part of inflation criterion (stability and sustainability of prices) has been made in the present fuzzy nice whether definition to be the playground for political logic, and has nothing to do with distinct economic logic. But as matter of fact in 2006 Lithuania actually failed just with the second component.

And perhaps e.g. in the case of Estonian hyper-crisis situation, it may be rational for new Commissioner Olli Rehn to move beyond a rigorous adherence to the hole stability and growth pact altogether and rewrite it to be more state-contingent (decision theoretically) and charitable to micro-member states with a past in half of century in the occupational centralized planning limbo with huge economic and human capital losses.

See also the same kind of suggestions for the Commisson in Sapir, A. (Ed). 2009 Sept. “Europe’s economic priorities 2010-2015. Memos to the new Commission.” Bruegle.

Ü. Ennuste Prof (Retd)


December 14, 2009 - Posted by | Uncategorized

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