Professor Steve Keen was on Tonight with Vincent Browne in Ireland last week, where the topic understandably was the European Union. The question for Steve was how the Maastricht Treaty fits his economic paradigm, which follows Hyman Minsky’s Financial Instability Hypothesis. Below is a 10-minute clip from the show. Here, Steve says he wrote back in 2000 that the Maastricht Treaty was “a suicide pact for European leaders because it was written in the belief that there would never be a serious financial crisis.” He says European governments would be unable to respond to one if it happened because of the strictures of the single currency. This is certainly what we have witnessed.
Steve’s site also points us to the full program if you click here.
Vincent Browne has a very good show where he asks provocative questions. For example, last September I caught an episode where he and his guests explore whether Ireland should abandon the euro. Browne has been extremely critical at the way Ireland has handled the crisis because cuts in public service have not been balanced by bondholder haircuts. For Browne at his questioning best, see this clip in the middle of my post asking “Why are Irish taxpayers bailing out unsecured bank creditors?”
P.S. – I should note that Steve also mentions the spectre of ‘nationalism’ as something that looms large. I agree with him and I have written about this often. If the policies of austerity are carried forward as seems likely, eventually Economic nationalism will rise up and cause a clean break with an unpredictable outcome.
On Steve’s domestic currency idea, the key to getting it to work is that the new domestic currency be one acceptable to pay federal taxes in Ireland. Now, that will get it to be accepted. Depreciation is inevitable in this scenario in my view, however. For more on this, see my post on How and why Greece will leave the euro zone.
This post originally appeared at Credit Writedowns and is posted with permission.
3 Responses to “Steve Keen: The Maastricht Treaty Is a Suicide Pact for European Leaders”
ok this is not so easy ..because i have to ask may EUZ will be safe after GR AND POR we sopost go out?.and if really GR change euro in dhrahmi i think will be catastrof for the peolpe have a littel money inside in GR and for the people have money outside of GR will be big favor(to much rich )..i don't know what to think ..some time may be we have to be practic how is know will be better ?but what ?the people have money out after GR is out EUZ get the money and help with businesess?i am not sure because if this surpluse whatetd why don't do now?.is a difficult situation but i dont believe GR will go out because is not in interes of EUZ and this is fact (loose to much money) ..anyway very intristing your post. thank you
Stop selling a pig in a poke
As Mr. Browne correctly said the problem behind the crisis is, that the G.I.P.S.I. countries national income was for years above the economic value they were able to create, and to bridge this gap they took loans from everyone who was ready to give it to them namely banks from Germany, France and their other partner countries in the European Union. The seeds of the crisis started with the acceptance of the Euro, that in one hand closed the possibility to finance their deficit by printing money, but on the other hand it enabled them to take loans from private banks, due to their mismanagement that characterized the whole financial system, that preferred the easier way, to give one loan of 10 milliard Euro to an irresponsible government and not 1 million Euros to ten thousand new economic ventures, that could bring real economic growth.
But now that the party is over, this has to be changed? The problem of European financial system is not only the equity of the banks, but also their failure to create system, that can channel the financial resources into the new ventures of small sized companies. If the banks will not do it, there will be no economy to pay the loans and the interest back. The other big problem is the protectionism in the labor market, let all the employees including the government freely chose to employ whom they want, and free the labor system from all the obstructions it is tied by. It will let the young people enter the work force and hopefully, with it will come the change for better. They are more educated than the previous generation more dynamic and better equipped with the new technologies. 40% unemployment rate of the youth is devastating in the countries with close to 20% population in pension and not accidently this rate of unemployment is mainly in the G.I.P.S.I. countries. As answer to all the threats of political disruption, i believe it is only problem of creating political leadership that looks on the realities beyond the next corner. It is time to say these things straight forward and not wrap it into some monetary talking, that nobody really understands its meaning. Not even Mr. Browne can clearly say, what it means to create in the G.I.P.S.I. countries their national currency. So please stop selling a pig in a poke.
i don't know what to think ..some time may be we have to be practic how is know will be better ?but what ?the people have money out after GR is out EUZ get the money and help with businesess?i am not sure because if this surpluse whatetd why don't do now?.