Posted by: Dirk | July 31, 2015

The nature of the game: euro zone does not agree while unemployment rises again

Thomas Mayer, formerly at Deutsche Bank, has written a letter to the FT:

The two key founding fathers of economic and monetary union, France and Germany, have a different understanding of what kind of game the currency union is. France has a chartalist understanding of money as a state-issued IOU. In the chartalist understanding, the sovereign may delegate money issuance to a central bank but remains the master of money. Sovereign default in the sovereign’s own money is an oxymoron. Germany, on the other hand, views money primarily as a means of exchange and store of value for private entities. If it is not tied to a commodity, such as gold, it must be issued by a central bank operating like an intelligent gold mine. In a virtual commodity money standard, sovereigns can of course default.

I think that Mayer is not the first one to understand this difference of approaches. Since he sums it up nicely, the question then is how to move on. The Germans (there are exceptions to the rule, of course) have shown that they don’t mind having mass unemployment in the European periphery. The market, they believe, will fix it. If it is not fixed, it must be the people – government – that do not allow the market to work. In the latter case nothing can help them.

The enlightened view is the French one, which sees both demand and supply as potential problems of macroeconomic management. The realization that employment depends on demand and that parts of demand depend on creation of net debts provides a completely different angle. Debts are not bad per se, but are acceptable if the outcome in the real world is improving welfare, however defined. The political process should define what public spending and public policies are acceptable, not restrictions on government spending and deficits.

Europe, it seems, has reached a point at which two points of view have emerged that both claim to further European integration. The pro-euro camp believes (or says) that without the euro Europe will fail. The anti-euro/reform the euro camp believes that with the current arrangements Europe will fail. Meanwhile, as the Eurostat reports, unemployment in the eurozone is on the rise again:




  1. […] Because aggregate demand falls short in the euro zone, way short. With 11% unemployment – now rising again – and an increase in government spending taboo, mostly because of German policy makers not […]

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