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5031. The Greek “Rescue”: Where Did the Money Go?

Author:
Pablo Gabriel Bortz
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper analyses the financial assistance provided to Greece in the first two rescue packages granted by the Troika (European Union, European Central Bank and IMF). It looks particularly carefully at claims by Sinn that a third of the public credit granted to Greece financed its current account deficit, while another third funded capital flight by Greek nationals, with only the remaining third used to pay creditors. The paper shows that Sinn inflates the assistance given to Greece by mixing several different concepts in the total. It also critically reviews the claim that the assistance was used to finance the current account deficit or capital flight by Greek citizens. Realistic accounting shows that 54% of the financial assistance provided to Greece was used to repay (foreign) debt, while another 21% was used to recapitalize Greek banks (some of which were owned by foreign institutions). Other claims about the rescue package are also analysed in relation to the treatment of Greek and foreign banking exposure to sovereign debt.
Topic:
Economics, Finance, Banking, and Development Assistance
Political Geography:
Europe and Greece

5032. The Cyclically Adjusted Budget: History and Exegesis of a Fateful Estimate

Author:
Orsola Costantini
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper traces the evolution of the concept of the cyclically adjusted budget from the 1930s to the present. The idea of balancing the budget over the cycle was first conceived in Sweden in the 1930s by the economists of the Stockholm School and was soon reinterpreted and incorporated into the fiscal program of the American political coalition supporting the New Deal, especially by the Committee for Economic Development during and after World War II. In the 1960s, Keynesian economists associated with the Kennedy and Johnson administrations reformulated the notion. Despite their claims at the time, their version differed only in degree from the earlier CED approach, the transformation being largely conditioned by changing political circumstances. In the 1980s, however, the concept changed substantially. Methods for calculating it transformed dramatically, as the notion became a device to limit and direct governments’ fiscal policies in a wide sense, that is, including institutional (or “structural”) reforms. The final section of the paper considers the shifting uses of the notion in the European Growth and Stability Pact.
Topic:
Economics, Budget, Economic Growth, and Fiscal Policy
Political Geography:
Europe, North America, and United States of America

5033. The Consumption Response to Liquidity-Enhancing Transfers: Evidence from Italian Earthquakes

Author:
Antonio Acconcia and Saverio Simonelli
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Exploiting three earthquakes in Italy as quasi-experiments, we analyse the response of homeowners’ consumption to transfers targeted to finance housing repair and reconstruction. To the extent that funds are made available up-front, these transfers are akin to loans, mainly affecting the liquidity of households’ wealth Exploiting three earthquakes in Italy as quasi-experiments, we analyse the response of homeowners’ consumption to transfers targeted to finance housing repair and reconstruction. To the extent that funds are made available up-front, these transfers are akin to loans, mainly affecting the liquidity of households’ wealth. We show that these transfers have little effect over a multi-year horizon—they are not a windfall. Yet, access to reconstruction transfers has a strong and significant effect on non- durable consumption on impact, especially for households with a low level of liquid wealth and bank debt. In contrast, we find no significant consumption change in response to the in-kind equivalent of cash transfers. Our study contributes to the recent literature on the dynamics of the consumption demand by the wealthy hand-to-mouth, providing micro-evidence in line with the main predictions of the theory.
Topic:
Natural Disasters, Homeownership, Housing, Earthquake, and Liquidity
Political Geography:
Europe and Italy

5034. The Prince('s) Rules: Economic Theories and Political Struggle in Europe

Author:
Orsola Costantini
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The Cyclically Adjusted Budget (CAB) is the estimated size of the public budget at some previously defined level of output which may represent the ‘normal’ output or a policy target and that usually is considered to be unaffected by business fluctuations or cycles. Such an estimate is supposed to isolate the automatic movements of revenues and expenditures, given the current structure of tax and transfers, from discretionary fiscal interventions and indicate the “impact” and sustainability of fiscal action. But this definition hardly does justice to the long and contentious history of this fateful estimate, which has been differently named, interpreted and calculated over the years and played a crucial role in many of the most important controversies in macroeconomics and public policy. This paper traces the evolution of the concept through time, tying it to the history of economic thought as well as economic history and policymaking. The reconstruction illustrates the important role the distribution of power plays in the evolution of economic theory and policy as the historical forms of the state-market relationship evolve. Here, however, we will focus mainly on the case of the European Union and Eurozone.
Topic:
Government, Politics, Science and Technology, History, Inequality, and Innovation
Political Geography:
Europe

5035. Labour in Europe’s crisis

Author:
Mario Pianta
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
A structural transformation is investing labour in Europe, accelerated by the crisis started in 2008. Job destruction is dominating employment trends in most EU countries and deep changes are taking place in labour relations, labour market institutions and wage regimes. The focus of this paper is on three issues. First,an overview is offered of the change taking place across EU countries at the level of industries in manufacturing and services. Second, the changes taking place in the structure of employment by professional groups are investigated, showing the factors that account for the evolution of skills. Third, the need for policies is argued, that are not limited to labour market conditions, but address production structures, especially in the countries hardest hit by the crisis.
Topic:
Labor Issues, European Union, Crisis Management, and Labor Market
Political Geography:
Europe

5036. Top incomes and the glass ceiling

Author:
Tony Atkinson, Alessandra Casarico, Sarah Voitchovsky, Facundo Alvaredo, Jorgen Modalsli, and Jakob Søgaard
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper studies the glass ceiling by analyzing the presence of women at the top of the income distribution using tax record data reported for a sample of countries with individual taxation. Extending most of the associated literature, the glass ceiling is examined in relation to the distribution of total incomes, thereby bringing self-employment and capital income into the picture. We show that female presence at the top of the distribution has increased, but that these changes do not seem to apply to the very top percentiles, especially in Denmark and the UK. When we look at the gradient in income as one moves up the distribution, we note that the difference between men and women has become larger in the UK, but not in Norway, although Norway displays a lower share of women in almost all top percentiles compared to the other countries in our sample. The analysis of the composition of income reveals that in the UK women have more investment income and less earned income, with the proportion from self-employment being similar for men and women over time. More dramatic changes in composition appear for Spain.
Topic:
Gender Issues, Women, Inequality, Income Inequality, Tax Systems, and Glass Ceiling
Political Geography:
Europe

5037. Austeritarianism in Europe: What Options for Resistance?

Author:
Richard Hyman
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
In much of Europe, the social rights and social protections won in the first post-war decades, by labour movements in particular, have subsequently been seriously eroded, and are further threatened by neoliberal austerity. Efforts to resist have been largely unsuccessful; but is an effective fight-back possible? In this paper I first outline the role of the European Union (EU) as a key driver of the recommodification of labour, through its growing emphasis on market ‘freedoms’ as an overriding priority, and on ‘competitiveness’ as the central policy objective for national governments. I discuss how this orientation has been reinforced by the economic crisis, and the ensuing pursuit of austerity and the imposition of ‘new economic governance’. I then survey a range of forms of protest and opposition: trade union action, ‘new’ social movements and engagement in the formal political arena. I suggest that a nuanced evaluation of success and failure is necessary. In conclusion I propose that the articulation of different forms of resistance – cross-nationally and between different actors – is essential in order to stem the neoliberal hegemony.
Topic:
Race, Science and Technology, History, Culture, Inequality, Finance, Ethics, Philosophy, Macroeconomics, and Austerity
Political Geography:
Europe

5038. The Eurozone crisis: A debt shortage as the final cause

Author:
Andrea Terzi
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper proposes a different interpretation of the Eurozone crisis, seeing as its “final” cause European policies which have forced private savings down too low. Neither fiscal profligacy nor capital flows are the “final” cause of the Eurozone political and institutional failure that thwarts the growth of output and jobs. The sovereign debt crisis and the capital flight of 2010-12 were triggered by the vulnerable position of creditconstrained local governments in a monetary union and of a fragmented banking system with no credible deposit insurance. If member countries were to comply from now on with present fiscal and macroeconomic rules, real growth and job creation would not be restored. The final cause of economic drag in the Eurozone must be searched for within those same rules. The paper first offers a critical review of the notion of savings in orthodox theory as the source of funds available for investment. It finds that in a monetary economy, financial saving can be stored only in the form of a financial claim and requires an act that reflects on others. This means that an act of financial saving requires funding and must be associated with a corresponding act of another unit issuing debt. Savings do not fund. They need to be funded. The paper then elaborates on a simple (“T-shirt”) model of private job creation in a monetary economy, where this is a function of the actual and the intended stock of gross private savings. When savings are in excess of the intended amount, private spenders create jobs, and when savings are short of the intended amount, private spenders destroy jobs. Assuming intended savings as a given, and because the ultimate source of savings is debt, then any policy that inhibits the formation of debt also inhibits the formation of financial savings and jobs. If debt (private, public, or foreign) is the final fuel for spending, then Eurozone rules that put a cap on public debt inhibit one major source of savings. Differences in economic units’ financial balances are the ordinary condition of a monetary economy, and policy should be aimed at supporting those differences that best work towards policy goals, not forcing a reduction of such differences by treating them as “imbalances”. Current fiscal rules leave the Eurozone with two fragile and risky alternatives: building up more private debt or counting on a permanently high flow of net exports.
Topic:
Debt, European Union, Finance, and Capital Flows
Political Geography:
Europe

5039. Laid Low: The IMF, The Eurozone and the First Rescue of Greece

Author:
Paul Blustein
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
As Greece descended into a financial maelstrom in the spring of 2010, a small group of staffers at the International Monetary Fund (IMF) held top-secret talks with officials from the German and French finance ministries to discuss the idea of restructuring Greece’s debt. Many independent analysts believed a restructuring was inevitable because the country’s debt burden appeared unsustainable. But instead, the “Troika” — the tripartite group of lenders that included the IMF, the European Commission and European Central Bank — attempted to resolve the crisis by giving Athens bailout loans of unprecedented magnitude, piling debt atop debt. The idea considered in those secret talks would come to fruition only much later, in March 2012, when Greece received the largest debt relief in history. In the meantime, the rescue effort would go terribly awry, with consequences that continue to reverberate today as the euro area struggles with weak growth and a rekindled crisis in Greece. This paper tells the story of the first Greek rescue, focusing on the role played by the IMF. A detailed look back at this drama elucidates significant concerns about the Fund’s governance and its management of future crises. The Fund has come under attack for yielding to the clout of European policy makers and lending its credibility to a rescue that some of its senior staffers viewed with grave misgivings. The result, critics lament, tarnished the Fund’s reputation for technocratic judgment, rendering it less effective at promoting international stability. The 2010 rescue enabled Greece to avoid default at that point, which might well have sparked a global conflagration akin to the 2008 bankruptcy of Lehman Brothers. European banks holding Greek bonds continued receiving payments of interest and principal for quite a long time thereafter, from the money lent by the Troika. But the interests of the Greek people were arguably sacrificed, and among economists there is widespread agreement that the country’s debt should have been restructured much sooner. In addition to shedding new light on what happened, this chronicle of events highlights the importance of the IMF’s acceptance, as a condition of its participation in the rescue, of a “junior partner” role in the Troika. This step is judged in the concluding section as being particularly ill-boding for the IMF’s ability to manage future crises, and policy recommendations are offered for alleviating the harm.
Topic:
Debt, Diplomacy, Regional Cooperation, Fiscal Policy, Eurozone, and IMF
Political Geography:
Europe and Greece

5040. Khattab (Jihadi Bios Project)

Author:
Muhammad Al-'Ubaydi
Publication Date:
03-2015
Content Type:
Special Report
Institution:
The Combating Terrorism Center at West Point
Abstract:
This report on Khattab, authored by Muhammad al-`Ubaydi, was released as part of the CTC’s Jihadi Bios Project, a series edited by Dr. Nelly Lahoud. The Jihadi Bios Project The CTC is pleased to launch the publication of papers as part of a series devoted to the study of jihadist biographies. The purpose of this project is to contribute to the knowledge of the evolution of the jihadist landscape by exploring it through the lens of the worldviews and experiences of actors who have shaped it. While some states and organizations, wittingly or unwittingly, contributed to the growth of the jihadist enterprise, it may be argued that modern jihadism, as it continues to unfold, is also the product of individuals, who made it into the global phenomenon that it is. As we study the biographies of jihadis, we are faced with a world crowded with different and differing worldviews. Beneath the banner of jihad that seemingly unites jihadis worldwide is a world marked not just by cooperation between groups and individuals, but also by competition and divisions. Some of the jihadis who occupy that world are characterized by a commitment to idealistic goals, by acumen, skills, and agility; others are driven by sectarianism, criminal disposition, and opportunism; while others manifest an odd combination of all. That is why the actions emanating from the jihadist landscape are the results of an amalgam of strategy, sophisticated planning and targeting, randomness, and juvenile enthusiasm. It is for these reasons and more that the complexity of the jihadist landscape requires different layers of analyses and a rigorous and patient approach to the subject. In short, the study of jihadism is about both the “forest” and the “trees;” and this series of biographies is a study of the “trees” as they are situated in the broader “forest.”
Topic:
Terrorism, History, and Jihad
Political Geography:
Russia, Europe, Middle East, and Saudi Arabia