Tag Archives: economic crisis

ECB: The Quest for Purity May Lead to Obscurity

Dr. Periklis Gogas is an invited contributor to The Business Thinker magazine. He is Assistant Professor at Democritus University of Thrace, Greece, teaching Macroeconomics, Banking and Finance. Recently, Dr. Gogas was a Visiting Scholar at the Ross School of Business, Uinversity of Michigan.

The European Central Bank, under the influence of Germany was designed with a single mandate: price stability. The function of the Fed in the U.S. is quite different as it is designed to play a significant role in preventing and fighting both recessions and inflation to avoid economic crises. It seems that the U.S. has a long memory regarding crises. The Great Depression and several other less significant in terms of impact crises since then are gone but not forgotten. This is evident in the dual mandate of the Fed that apart from the pursuit of price stability it can also intervene whenever seems necessary with an expansionary monetary policy to provide the liquidity to stir the economy away from danger.

In the European Union things are different. The design of the euro, the monetary union and the EU seems to ignore the history of crises and even recessions. The European Monetary Union’s “Stability and Growth Pact” is a great example. According to this, no member country can run a deficit and debt more than 3% and 60% of its GDP. On top of the fact that this requirement was proven to be hard to enforce, it also makes no distinction between normal economic activity and periods of recessions and even crises. This leaves European governments with no tools for implementing economic policy to avoid or dampen economic downturns as fiscal policy is limited according to the above requirements and monetary policy is in the hands of the European Central Bank where there is no mandate to fight recessions and crises.

Continue reading ECB: The Quest for Purity May Lead to Obscurity

The Making of The Greek Fiscal Crisis

Dr. Periklis Gogas is an invited contributor to The Business Thinker magazine. He is a faculty member at Democritus University of Thrace, Greece, teaching Macroeconomics, Banking and Finance

The public debate over Greek debt is in the headlines for months now ever since the first issues with regard to Greece’s fiscal problems were raised. Political and ideological confrontations on the subject are inevitable. Accusations over culpability are an everyday occurrence between members of the two major political parties PASOK and ND that ruled Greece by turns since democracy was restored in 1974. Academic economists in Greece follow these developments closely and they are often at the epicenter of heated discussions in the media with journalists and tax payers indirectly or directly accusing them for the current situation. People are wondering why all the economists that now stress the shortcomings of Greece’s fiscal policy remained silent or at least they did not criticize that strong the same policies in the past. The truth of course is that no politician ever asked them and no one ever listened to their warnings. Politicians were busy accusing each other for creating the debt. Thankfully, numbers can tell the truth impartially without subjective political judgments and deception: a simple graph like the one in Figure 1 depicts the truth. Continue reading The Making of The Greek Fiscal Crisis