Green Papaya

During the Eurozone crisis, Germany imposed its philosophy of strict austerity on addressing the structural economic problems in the Eurozone.Furthermore, the architecture of the Eurozone was faulty, as was pointed out by Martin Feldstein and others in the 1990s.Despite such warnings, it was erroneously assumed that the market could effectively address all possible issues which might have come up.This belief was upheld despite the absence of an effective crisis-mitigating mechanism.As a result, countries that found themselves in a deep recession were forced to counterproductively pursue a strict fiscal policy, with depression being the inevitable outcome.Indicative of this is the example of Greece: the country lost 25% of its GDP while more than 600,000 Greeks, mostly young people, had to search for opportunities in other countries.Likewise, the treatment of Cyprus in 2013 was unnecessarily harsh.This can be better understood by comparing how Spain’s rather similar banking crisis was resolved.On the one hand, Spain was offered a loan of €40 bln aiming to save its banking system.This loan was provided without a Memorandum of Understanding or a rescue package.On the other hand, Cyprus was treated much differently and perhaps vindictively.Indeed, Troika exhausted its discretionary power on the scale of austerity enforced using Cyprus as a trial ground of bail-in interventions.Be that as it may, this approach (which I describe as Neoliberal Model II) reflected what was perceived as economic orthodoxy.In this Model, the state’s role is limited, and the market system is given excessive importance.Moreover, the principles of solidarity and equity are considered irrelevant by this Model.Its value system revolves around individualism and profit maximization. Inevitably collective goals are ignored.I am noting a distinction with what I describe as Neoliberal Model I, which challenged Keynesianism and influenced policymaking in the 1970s-2000.More specifically, this Model focused on reducing government spending and deregulation.In addition, it was also in favour of tax reductions and incentives aiming to increase labour supply and investment.While the Neoliberal Model I had its philosophy, it also responded to what it considered the excesses of Keynesianism and the welfare state.Politically, this approach was expressed by President Ronald Reagan in the US and Prime Minister Margaret Thatcher in the UK.Evidently, this philosophy was strongly supported by the middle classes in several countries.Subsequently, President Bill Clinton’s Neo Keynesian approach maintained some of the pillars of Neoliberalism I.One of Clinton’s objectives was to ensure that the benefits of growth and development were enjoyed and shared by a broader set of Americans. He certainly achieved this goal.However, what I describe as Neoliberal Model II, a model propagated, implemented, and exported by Germany, went too far.Even before the pandemic, the impact of the pursued philosophy was negative.More specifically, the pursued rationalization of economic indicators came at a very high socioeconomic cost: reduction of economic activity, higher unemployment, and growing inequality.When Covid 19 came, and many countries faced extraordinary circumstances, the EU had to revisit this policy approach.To begin with, it was clear the health sector and infrastructure were adversely affected by the sustained draconian fiscal austerity.This led to a high social cost, but this approach could not remain unaltered with the pandemic.The state had a role to play, and there was also relaxation of the rules of fiscal austerity.Furthermore, the Eurogroup acknowledged on April 9, 2020, that the policy approach to the previous crisis had been inadequate.The question is, what would replace the Neoliberal Model II.I think it is important to think and act beyond ideological perspectives.PragmatismPragmatism is of paramount importance. Private initiative and the market system will always be very important.But so is the concept of a mixed economy. In this regard, the state will always have a role to play.This should entail three roles: strategic, social and referee.It is important to understand that it is wrong to decouple fiscal policy from economic circumstances within this framework.This does not mean that we should push aside the principle of fiscal prudence.It means, though, that fiscal discretion should be part of policymaking.In times of recession, the government should stimulate the economy by pursuing expansionary policies.In times of economic growth, budgets should be balanced, and in some cases, it will be appropriate even to have surpluses.Last but not least, a new model should also revisit the broader value system.The principle of solidarity should be given great attention.Furthermore, equal opportunities for all should be encouraged.Lastly, while pursuing personal goals, we must simultaneously respect and work for collective objectives.

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The UK economy rebounded last year with growth of 7.5% despite falling back in December due to Omicron restrictions, official figures show.It was the fastest pace of growth since 1941, although it came after a dramatic 9.4% collapse in 2020 as the pandemic forced parts of the economy to shut.In December, the economy shrank 0.2% as Omicron restrictions hit the hospitality and retail sectors.Chancellor Rishi Sunak said the economy had been “remarkably resilient”.

The Office for National Statistics (ONS) figures showed that in the last three months of 2021 growth was 1%, which ONS director of economic statistics Darren Morgan said was “pretty healthy” given Omicron’s spread and the introduction of some restrictions.

(CNN)In 2022, the European Union must confront some of the most difficult challenges it faces if it is ever to become the geopolitical power its leaders so desperately want it to be.The Covid-19 pandemic has left efforts to create a more assertive global Europe on the backburner — at the very moment when the global politics of the past two years has created myriad problems for the bloc. These will only get worse if prompt action isn’t taken.Whether it’s a migration crisis on the bloc’s frontier with Belarus; the Russian military buildup on the border of Ukraine and the antagonism of member states like Lithuania and Estonia; or Chinese trade threats, the EU badly needs a strategy for dealing with the world beyond its borders before these hybrid issues overwhelm and weaken the union.Bold proposals have been made by the Commission that could, in theory, go some way to solving these problems.On Russian aggression and other military issues, the EU has proposed rapid deployment units tailored to specific missions, reducing the reliance on NATO and the US to protect the continent. On China, Brussels is trying to counter Beijing’s giant global infrastructure initiative by offering alternative investment options. In recent years, the EU has tried to walk a near-impossible tightrope, maintaining an economic partnership with China while not alienating an increasingly anti-Beijing US.

Turkish producers say extreme volatility in the lira is hurting them more than high interest rates as President Recep Tayyip Erdogan wages a war against borrowing costs at the expense of price stability.From machinery to packaging and construction, industry has for weeks been battered by unprecedented swings in the lira. The currency has shed just over a third of its value against the dollar since September amid Erdogan’s calls for the central bank to lower rates as he seeks to spur economic growth and shore up his waning popularity ahead of 2023 general elections.The lira, the worst-performing emerging-markets currency in the world, clawed back some losses after Erdogan on Monday introduced emergency measures — effectively an interest-rate hike in disguise — in an effort to stem the volatility. But there’s been little let-up in the currency’s gyrations.

Inflation is surging in Brazil, forcing a country with one of the highest death rates from Covid-19 to grapple with the economic fallout of the pandemic.While the global economy is forecast to rebound more than 4% next year, including in countries bordering Brazil, more economists expect Brazil to remain stuck in recession during 2022 as it battles one of the world’s highest annual inflation rates of 10.7%.“Brazil really stands out—its inflation rate has risen much faster than almost any other emerging economy, and you can really see that hitting consumers,” said William Jackson, chief emerging-markets economist at the London-based research firm Capital Economics.

Inflation rates from Canada to Germany have climbed to the highest level in decades as businesses and consumers emerge from lockdowns, boosting energy prices and prompting supply bottlenecks. U.S. inflation hit a 39-year high in November, the government reported Friday.

At 10.7%, Brazil’s 12-month inflation rate is the third-highest among the major developed and emerging economies that form the Group of 20, after Turkey and Argentina, according to the Organization for Economic Cooperation and Development. A severe drought, the worst in almost a century, has contributed to inflation, drying up hydroelectric reservoirs and adding to demand at more-expensive thermal plants.A sharp depreciation in the Brazilian real—which has lost about 25% of its value against the dollar over the past two years—has increased the price of imported goods including fuel, adding to inflation.

Stop us if you’ve heard this before: Market strategists are predicting that 2022 will finally be the year when investors choose value stocks -— like banking, oil, consumer, industrial and healthcare companies — over Big Techs, such as Apple (AAPL), Amazon (AMZN) and Facebook owner Meta (FB).It’s been a common refrain among stock pickers for several years. But the so-called FAANGs, as well as Microsoft (MSFT), Tesla (TSLA) and Nvidia (NVDA), continue to dominate the market weighting of the S&P 500. So will investors really finally quit these leaders of the Nasdaq for cheaper bargain stocks?For what it’s worth, that appeared to be happening Monday. The Dowsoared more than 700 points, or 2.1%, led by gains in Walgreens (WBA), Amgen (AMGN), American Express (AXP), Boeing (BA), Visa (V) and Coca-Cola (KO). But the Nasdaq was up by less than half that amount.

The People’s Bank of China on Monday said it would cut the reserve requirement ratio for most banks by half a percentage point, starting December 15. That move, which reduces the amount of money that banks have to keep in reserve, will unleash some 1.2 trillion yuan ($188 billion) for business and household loans.The decision — the second cut to that ratio this year — came on the same day China’s Politburo signaled that it may take more aggressive actions to protect the economy in 2022. The Chinese Communist Party’s leadership team, chaired by President Xi Jinping, said in a statement that “ensuring stability” would be a top priority in the coming year.

China cut the amount of cash most banks must hold in reserve, acting to counter the economic slowdown in a move that puts the central bank on a different policy path than many of its peers.

The People’s Bank of China will reduce the reserve requirement ratio by 0.5 percentage point for most banks on Dec. 15, releasing 1.2 trillion yuan (US$188 billion) of liquidity, according to a statement published Monday. 

The reduction was signaled by Premier Li Keqiang last week when he said that authorities would cut the RRR at an appropriate time to help smaller companies, and is the second reduction this year. The decision comes after recent data showed the economy and industry stabilizing, although Beijing’s tightening curbs on the property market have led to a slump in construction and worsened a liquidity crisis at developer China Evergrande Group and other real-estate firms. 

The cut is a “regular monetary policy action,” the PBOC said, pre-empting expectations that the decision was the start of of an easing cycle. “Prudent monetary policy direction has not changed,” it said, adding that the bank “will continue with a normal monetary policy, maintaining the stability, consistency and sustainability of policy, and won’t flood the economy with stimulus.”

However, with the U.S. Federal Reserve and other global central banks looking to tighten policy, the move to add stimulus by the PBOC makes the divergence between China and much of the rest of the world even clearer.