Economics

Еврозоне нужно больше, чем количественное смягчение

Jan 28, 2015 Martin Feldstein

КЭМБРИДЖ – Хотя Европейский Центральный Банк запустил по размерам более значительную программу количественного смягчения (Quantitative Easing - QE), чем ожидалось, даже его сторонники опасаются, что этого может быть не достаточно для того, чтобы повысить реальные доходы, снизить уровень безработицы, и уменьшить соответствие долга к ВВП у правительств. Опасаться стоит.

Но сначала хорошие новости: ожидание программы QE уже ускорило падение международного курса евро. Более слабое евро будет стимулировать экспорт в странах еврозоны - примерно половина из которых выходят на внешние рынки - и, таким образом, будет повышать ВВП еврозоны. Понижение курса евро также будет повышать цены на импорт и, следовательно, общий уровень инфляции, отстраняя еврозону дальше от дефляции.

К сожалению, этого может быть недостаточно. Успех QE в США отражал их начальные условия, которые очень отличались от тех, которые преобладают сейчас в Европе. Действительно, страны еврозоны не должны ослаблять их усилия по проведению реформ под предлогом того, что покупки облигаций со стороны ЕЦБ решат их проблемы. Но даже если эти страны не смогут преодолеть политические барьеры на пути к осуществлению структурных изменений в трудовом и товарном рынке, которые могут улучшить производительность и конкурентоспособность, они могут проводить политику, которая может увеличить совокупный спрос.

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Martin Feldstein

Writing for PS since 2008
130 Commentaries

Martin Feldstein was Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research. He chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984. In 2006, he was appointed to President Bush's Foreign Intelligence Advisory Board, and, in 2009, was appointed to President Obama's Economic Recovery Advisory Board. He was also on the board of directors of the Council on Foreign Relations, the Trilateral Commission, and the Group of 30, a non-profit, international body that seeks greater understanding of global economic issues.

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0 Comments on this paragraph, 14 Comments on this article

Andrew Thorby Feb 14, 2015

While I agree with the assessment that QE will not be sufficient to solve the EU growth problem the prescription of using tax codes for something other than raising revenue is not the right answer. It is a mechanism designed to provide EU leadership with an "easy out" rather than tackling critically needed structural reforms and adds to an already Byzantine body of tax codes.
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Albert Aftoora Feb 1, 2015

Dr. Feldstein:
Apparently you didn't notice that it took 5 years of various
QE programs before real U.S. economic growth (excluding the effect of population increases) exceeded 1%. Except for the immediate aftermath of the economic collapse beginning in 2007, monetary policy succeeded only in driving equity prices up--great for those of us who had the wherewithal to invest; not so good for employment, wages, or production. In fact, real growth didn't accelerate in the U.S. until the end of QE2 was announced and significant growth didn't occur the program ended.
The massive structural inefficiencies in Europe, coupled with no-growth population pretty much assures that any European QE program will fail to simulate growth. But, apparently, it's the last tool in the ECB's toolbox, so they will use it.
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Per Kurowski Feb 1, 2015

In Europe the real economy depends much more on bank credit since America has more alternative sources.

And that is why, when the bank transmission of credit channel has been blocked by dumb credit risk weighted equity requirements for banks, liquidity provide by QEs cannot flow to where it is most needed, to where it could do the most good.

If all that QE was used in order to inject new equity into European banks; and the credit risk weighting abolished, because it is discriminatory, then Europe would stand a better chance to make it.

http://subprimeregulations.blogspot.se/2014/05/young-unemployed-europeans-you-cannot.html
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Paul Hanly Feb 1, 2015

Query cause and effect. Was it QE that defflated the Euro, or was it just the clear message about how bad things were in Europe that even the optimists could not ignore.

Where is the explanation of how a central bank swapping securities for banks increasing their reserves by deposits with the central bank, thus providing an increase in the liabilities in the Central Bank to match the increase in the assets side from the purchase of the securities? Is there none because the author either doesn't understand the lack of a direct transmission channel to the real economy? Or because the explanation of how QE is an asset swap would undermine the psychological effect of QE.

Where is the evidence of a transmission channel that doesn't exist through other means?

For example in a balacne sheet recession as explained by Richard Koo, the private sector won't borrow but needs to increase net savings/debt repayments and therfore interst rates fall once there is confidence banks won't fail.

Europe fces many problems that QE can't fix:
1. Demographics in many countries reducing the size of the workforce
2. Lower borrowng capacity in the private sector because of the millions un/underemployed compared to 2006
3. Fallen demand for the same reasons
4. Fiscal austerity requiring, in the absence of changes in the external balance, reduced surpluses and even deficits in the private sector (based on the acutal identity of GDP ie the formulae for its calculation - this is not opinion or ideology it is plain mathematics
5. A failure to recognise that there is no inability of banks to lend other than capital shortfalls that could be solved by issuing shares because, as the Bank of England has clearly stated in it's recent paper on money creation, commercial banks create mney out of nothing when they create a loan (banks asset) and deposit it in the borrowers account to be spent (bank liability).

Austerity is a disaster for the large proportions of the populations of the PIIGS, while Germany benefits from mercantilist policies based on large existing capital investment and a Euro much lower than it otherwise would be if it were not for the parlous state of the PIIGS.
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Stepan Benyovszky Jan 31, 2015

So, is it possible that a Greek and Spanish default would drive bond spreads across Europe high, in a situation similar to the US before the start of QE, which would allow for:

1) the positive effect of QE on the spread, driving it down again
2) more investments flowing into equities
3) further weakening of Euro, making EU exports even more competitive, helping domestic GDP

Could this be the time to let the big defaults happen?
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Roberto Marsicano Jan 29, 2015

New homes?
In Italy there is an excess of unsold homes, there is the tax credit on mortgages, but the housing market is almost blocked.

What might work is an acceleration of depreciation on investments, but, since todays investments are for the automation and computerization, this could lead to additional unemployment.

Maybe you should eliminate forever the VAT.

The elimination of VAT would also facilitate international trade intra European because it eliminates complicated and costly procedures for both businesses and for the bureaucracies of the member states of the EU.
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hari naidu Jan 29, 2015

The default strategic policy perspective of Greece, after election, is (1) continued austerity or (2) default on its debt to EU countries including Germany.
There is no other alternative left unless Berlin agrees to write-off (bailout) debts enforced by the Troika.
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Gimel Wicaksono Jan 29, 2015

Thee are at least two questionable proposed actions here. First, changing the structure of tax may not boost the spending either for two reasons. First, Increasing VAT and reducing personal's income tax may produce a backfire from decline of the private firms' profit, as euro's competitiveness for attracting investments will also decline, initiating more unemployment and further reallocation of business outside of Eurozone. The other factor is modifying tax rules. In what direction? increasing it would reduce the deficit but surely will jeopardize the economy as it would discourage investment. How about reducing it or in more scientific way: restructuring it such that the tax income will not fall. This will bring us to the first reason. So the only possible way to boost demand will be reducing the tax rates, putting more pressures on the government debts temporarily, increasing the long term rate as inflation will soar. Of course, in long term, this may not successfully boost the investment as many firms, instead of making investment, will try to restructure themselves apparently to hedge themselves against the risk of default. There are no "easy" way out but some austerity measures are required to reduce the government spending especially about the employment benefit which in a big part, in percentage points have given rise to the cost of production in the economy. But, that would be against the norms and probably will jeopardize the ability of government to capture the support from the people resulting in the election defeat. So, where to begin? It's hard to answer. It's true that QE will not give much help, but what else can be done that will be politically "correct"?
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John Brian Shannon Jan 29, 2015

Hi Martin,

I agree and appreciate your points.

Of special interest and as you've pointed out, delaying the imposition of a VAT for 24 months, will spur spending in the EU sooner rather than later.

At the 25 month mark, proceeds from the new VAT can then be used to fund job-creation and other economy boosting mechanisms (as you've pointed out, if I'm reading you correctly).

Also of note, is taxation changes can remove roadblocks to progress for some, while costing higher income earners only a few percentage points (and for them) relatively small amounts of money.

Whether EU QE is deemed to 'be enough' to solve the crisis or not, EU leaders should not put all of their eggs in one basket -- rather, this is the time to pull out all of the stops and make this an opportunity to identify and reform all non-productive or under-performing legislation/regulation/taxation and other parts of the economy such as expensive non-renewable fossil fuel power generation, which has big healthcare, agricultural, and infrastructure ramifications.

Although solar and wind can be expensive to construct initially, with no ongoing fuel cost or supply disruptions and zero healthcare costs or environmental damages to pay for, each GigaWatt of renewable that displaces fossil, will lower costs over the long term if sited correctly.

Whether this takes the form of hundreds of GW or tens of GW at this time is one thing. But during an economic crisis, it is always good for leaders to be seen to be doing something constructive about short, medium, and long term inefficiencies.

As always, best regards, JBS
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Procyon Mukherjee Jan 29, 2015

When the large scale asset purchases started with Fed in U.S. the excess reserves stood at an insignificant few million dollars in 2009, in five years this number today stands at $2.5 Trillion and still growing. The Fed is shelling out interest, although marginal, to the commercial banks on these excess reserves. What economic benefit this is doling out and to whom, is a matter of debate.

Now EU is embarking on the same journey with a low excess reserve; the growing excess reserve would again follow the same route, perhaps. All the logic on inflation targeting, et al, falls flat on the face of this excess reserve inflation, which is the only deposit that grew out of proportion as any QE program got started, anywhere.
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jagjeet sinha Jan 28, 2015

Professor Feldstein remedies - aggregate demand and spending - emanate from a Nation where there is a Real Central Bank, a Real Capital and a Real CEO accountable for measurable performance. Europe is neither a Real Nation nor it Brussele a Real Capital. The ECB is a Virtual Central Bank and even the CEO is perhaps best described as Mayor of Brussels. The Eurocracy is handicapped in its capacities and blissfully redirects deflation - to Britain and Germany. Austerity is a pretense for nationalist leaderships to prevent transfer payments to ClubMed - Greece the poster boy. Since the launch of The Euro, nearly 5 million from The Eurozone have fled to Britain - boosting demand for Housing and Infrastructure in the Little Island. With One Language - English - Europe can create Demand Mountains by creating New MegaCities that absorb the millions fleeing The Eurozone. Britain can easily create perhaps Three New Londons - to absorb the influx from The Eurozone. QE Type 1 that ECB has announced is rightly seen as one step to plug the haemorrhage. QE Type 2 perhaps Stage II that creates Eurobonds to fund Public Infrastructure Assets - a European New Deal, a European Apollo. What Professor Feldstein has outlined falls short of recommending European FDR, JFK, and Alexander Hamilton. Besides Atlanta, Boston, Chicago and Dallas - the Ten New Londons that become the backbone for Demand Mountains. The ultimate measurable - when 5 Million from The Little Island find their Eldorado within The Eurozone, not needing to escape the European embrace for Australia Canada and America.
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Julius Bloomfield Jan 28, 2015

The European problem is born out of trying to form a multi-state economy such as the US, Australia and Canada where they have failed in one aspect. Whereas the US, Australia and Canada have states and provinces that support each other through low economic times with a system of transfer payments and federal spending (the "have" provinces giving to the "have not" provinces), the EU depends on loans which have to be repaid. It is unpalatable for the rich countries simply to give money to poorer countries and would be political suicide to do so, but necessary if the weaker countries are to prosper and one day become "have" countries.
The economic solutions are the easy part, selling them to the voting public is a whole different matter.
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Jean-Christophe Mounicq Jan 28, 2015

FRENCH WON'T DO ANYTHING
In France, they should stimulate investment. But the socialist government prefer to stimulate demand. Wealthy people are flying away. Poor people are consuming chinese products. The production is collapsing when unemployment is exploding. A total failure. As the whole political class is made of high civil servants, totally ignorant of business, I do not imagine any French government taking any good big measure.
JC Mounicq
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Paul Daley Jan 28, 2015

A change in tax structure is needed, but Feldstein has it backwards. When demand is deficient and real interest rates are at zero, the last thing you need is higher consumption taxes, or subsidies for savings and capital formation. Zero real interest rates means money is free, savings are plentiful and investments have already begun to run past anything that's productive. Further subsidies would just further corrupt financial markets.

What's needed now to complement the ECB's QE program is lower taxes on consumption and higher taxes on capital, starting with capital gains. Simply making capital gains tax rates vary inversely with real interest rates will stabilize capital values, end unearned and undeserved capital gains, and force the ECB's QE program to be felt first in the real economy and only later in capital markets through its effect on income flows. Basically, it would reverse the order of the transmission of monetary effects from what we have today.

None of this is hard to see or hard to do but it would turn financial markets, which run on capital gains, back into a sidecar to the real economy. That, of course, is exactly the opposite of the situation we have today.
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Еврозоне нужно больше, чем количественное смягчение

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