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Heiner Flassbeck: The market economy of the 21st century

One can only give the author right; the global economy is facing major challenges. Flassbeck is willing to take all urgent economic, social and environmental issues of our time. So far so good. Unfortunately, the then proffered supposedly new idea turns out to be a throwback to the Keynesian toolbox of the seventies of the last century. This is a permanent influence on the economic development in short global control. Make no mistake about, without state aid it would be the biggest financial and economic crisis since the Great Depression.

The reality is, however, the state has previously participated actively in the creation of this crisis. Only through the unsound financial management states, it could become the object of speculation. In addition, the “debt crisis” is not the primary result of speculation. The majority of this debt comes from the pre-crisis period. In Germany, the figure is around 1.5 trillion euros. “The state can also fall back on the assets and the income of its citizens and thereby increase his own wealth.” Surely, the state can dramatically increase the tax. Nevertheless, as the average tax rate and the aspirations of the taxpayer will increase. Undeclared work, tax capital flight will increase. Top performers are moving. All of them already have serious problems.

A brief cultural history of money

Dieter Schnaas has done something unheard of. In only 170 pages, he reveals the entire evolutionary history of the money out, from the Phoenicians to the financial crisis.Of course, one can speak in any case of a “small cultural history of money.” It comes to a flirtation and provocation of the Berlin business journalist Dieter Schnaas.What is it? May be one part is a history of economic thought; the other is the “trivial liberalism in modern financial markets”.

Schnaas is convinced that the financial crises of today are not a sign of market failure, or a crisis of capitalism. They are not an argument against the greed and certainly, they are not proof of the folly of management salaries and profit goals. Rather, they are an expression of a collective state capitalist system failure.

Money is money, and the demon is the lover of people. Possession of money, it was the freedom not have to care about money.We are in our own hands, when we have the money to open new access ways, or even for what seems essential for us, such as the environment and natural resources.

Fiscal consolidation – Liquidity without end

To rescue banks and governments, the European Central Bank (ECB) liquidity in unlimited amounts is available. This is stoking inflation. It comes to the bailout of the ECB since the outbreak of the economic crisis, and it can be summarized in one word – liquidity! The interest for this is currently at one per cent, with the consequence that the interest rates on the interbank market at 0.7 per cent have reached a low level. Moreover, the impact of the crisis prompted the ECB to further unconventional measures. As early as mid-2009, the Fed bought bonds to reduce volatility.

Then, when the Greek crisis broke out, they also intervened in the market for government bonds in which they bought from these papers the banks. For investors it is a buy signal for government bonds – because they can be unloaded if necessary at the central bank again. Perhaps the purchase of government bonds in the crisis is no alternative. Nevertheless, no case should it remain a permanent condition. In the medium plan, it is stoking inflation. For the ECB, it would be prudent to plan for a medium end of the acquisitions and signal a clear exit strategy.

Bonds in the capital market

The ECB continues, as before, that is what the central bank President Jean-Claude Trichet announced yesterday at a press conference. Firstly, we wanted to continue the unlimited provision of liquidity to banks and others continue to buy bonds on the secondary market. The signals, sent out by the central bank with these decisions are disastrous. This is because the financial crisis was largely caused by a policy of cheap money, in consequence of this; it came to an overvaluation of real capital goods. Now, we fight with the exact same strategy the impact of misguided monetary policy.

The consequences could be severe. With the second special measure the government bond purchase program, the ECB wants to prevent a widening of the debt crisis to other countries. It has not been possible. Rather, the decision takes the pressure off governments to bring their own budget back in order a vicious circle. This finally has to stop!

The euro is safe

The opposite of good is well intentioned. You must evaluate the current outcome of the negotiations of Finance in Europe. It has several weaknesses. First, the recovery mechanism is extended without including the creditors in the process. Originally it was expired in mid-2013, and thus the community held liable only temporary. Now it is permanently installed. The amount is still completely unknown. However, what is clear is that the participation of creditors will not be effective. The basic mistake is that creditors, whether private or public, not necessarily take into liability.

Only in the second stage from 2013, the creditor may be used more than a change in the bond condition. Until this is done in any significant way and it will probably take 5 to 6 years. Therefore, the earliest in 2018, the new bailout mechanism can do its work. This is certainly too late. Second, the Stability and Growth Pact is not receiving the necessary teeth. He remains a toothless tiger.

Although for violations of the convergence criteria, an automatic deficit procedure is followed. The Council can stop this process by a qualified majority again. Since the introduction of the euro, the debt criterion of 3 percent was breached 73 times and it is without consequences. If the introduction of sanctions against deficit sinners will not be separated from the political expediency of the European “horse-trading”, in this way nothing is changes. Maybe some of you remember what happened in the 90s.

At that time, it was said: “The pension is safe,” and no one believed it. Today we say, “The euro is safe.” This statement will not be credible. Nevertheless, may be the problem lies not in the failure to comply with the Stability Pact, but has made the high export surpluses to Germany to the rest of the euro countries. How the other countries are pay these debts? By saving not sure because, they can only export more to Germany.

This would require Germany to import more than they export. It will not happen. If this imbalance is not abolished, this could lead to a collapse of the euro.