Feldstein received the John Bates Clark Medal in 1977 as the U.S. economist under the age of 40 who made the most significant contribution to economic thought and knowledge, then ran the National Bureau of Economic Research, arbiter of U.S. business cycles, for most of the next 30 years until 2008.
Bloomberg 17/3 2010
The crisis in the eurozone is the result of France’s persistent pursuit of the “European project,”
A weak dollar may be one of the bright spots in the U.S. economy,
The dollar has fallen 6.3 percent this year, making it the worst performer among the 10 major currencies
Unfortunately, the front-loaded deficit reductions may push economically weak countries into recession for the next year or two. That is the cost of achieving the needed long-term deficit reduction in the current economic and political environment.
The countries are nevertheless right to accept that bitter medicine in order to get on the right longer term path.
However, government officials are not warning the public that this is the choice that they have made. Instead they are claiming that the front-loaded fiscal deficit reductions will not weaken the economy in the short run. They argue that the increased confidence that will result from the prospect of lower deficits will lead to enough increased spending by consumers and businesses to actually raise the short-term pace of economic activity.
I think that is unlikely to occur. Although the increased confidence may eventually lead to increased spending, it will not be strong enough in the short run to outweigh the immediate contractionary effects of reduced government spending and higher taxes.
It is even possible that the resulting economic slowdown will cause the cyclical component of the budget deficits to rise temporarily, offsetting part or all of the legislated reductions in the structural part of the fiscal deficits.
I believe now, as I did 20 years ago, that imposing a single currency on a heterogeneous group of countries is a mistake.
A rescued eurozone would still face the problem inherent in the single currency: an inappropriate monetary policy in different countries at different times.
A new start for the euro is still well worth trying.
A rapid fall in the euro can save Spain
Monnet and Schuman argued that a political union similar to America’s would prevent the types of conflict that had caused three major European wars
Harvard University Professor Martin Feldstein, who predicted in 1998 that the euro would prove an “economic liability,”
In the final months of his eight-year term, which ended Oct. 31, Trichet used three speeches in the U.S. to take on American economists such as Feldstein by arguing the euro is built to last and its economy’s strengths, including tame inflation, are “overlooked.”
Greece will exit the 17-nation euro-area to default and devalue its way back to growth, Feldstein said.
“Even if they wipe out the debt, they still have a current-account imbalance they can only resolve by leaving the euro so they can devalue,” Feldstein said.
Not defaulting and devaluing would mean “negative growth rates as far as the eye can see,” he said.
Martin Feldstein, professor vid Harvarduniversitetet har varit en enveten kritiker av EMU sedan 1992, då han skrev den nu klassiska artikeln i The Economist, där han framförde en rad argument mot européernas EMU-projekt.
“The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy,”
Lars Jonung, an adviser to the European Commission in Brussels
Let Greece take a eurozone ‘holiday’
Europe has to face threat of US trade deficit
Britain must avoid Germany's mistake
The writer is professor of economics at Harvard University and president of the National Bureau of Economic Research
The German example shows that Britain's decision about adopting the euro is not a question of whether the time to do so is now right. Adopting the euro is a permanent commitment with permanent consequences. My judgment is that it would not be in Britain's long-term economic interest to accept the constraints of the single currency.
Here are the facts. Germany's gross domestic product rose only 0.5 per cent last year, the lowest of all the leading European countries, and ended the year in decline. Germany also has the lowest inflation rate, just 1.2 per cent. Because the single currency means that all eurozone countries have the same nominal interest rate, Germany's real interest rate is the highest in the eurozone. This is a very dangerous situation in which the high real interest rate weakens the economy and causes inflation to fall further. As the inflation rate falls, the real interest rate rises, creating the potential for a dangerous downward economic spiral.
If the German economy were not constrained by the single currency, natural market forces would cause interest rates to decline, thereby boosting all kinds of interest-sensitive spending. Weak demand in Germany would also cause the D-mark to decline relative to its trading partners, boosting exports and helping producers to compete with imports from the rest of the world. Instead, German manufacturing has been weakened by the sharp rise of the euro over the past year.
In addition to these automatic market responses, an independent Bundesbank would probably have responded to the weak economy and declining inflation by temporarily lowering short-term interest rates. This is now impossible. The European Central Bank must make monetary policy for Europe as a whole, an area in which inflation is now above the 2 per cent target ceiling.
The Stability and Growth Pact also prevents Germany from using a temporary fiscal stimulus to increase growth and bring down unemployment. Although persistent deficits are harmful in the long term, a temporary rise in the fiscal deficit could in principle provide the stimulus needed to rekindle growth. But the eurozone countries have had to constrain themselves from running deficits because of the potential danger to the common currency.
As an American who has long been sceptical about the economic effects of the euro, I am often asked why a single currency should be good for a large continental economy such as the US and yet not for Europe. The answer is that the US economy has three basic features that make it possible to have a single currency without the harmful effects that now arise in Europe.
First, American employees move within the country when demand is relatively weak in a particular region, facilitated by a common language and a culture that regards moving across the country as perfectly normal. Germans are not leaving Germany in large numbers for areas of Europe with faster growth or lower unemployment.
Second, wages are much more flexible in the US than in Europe, reducing the decline in regional employment that occurs when demand falls. And third, the US has a federal fiscal system that directly offsets about 40 per cent of the relative decline in any state's gross domestic product by a lower outflow of taxes to Washington and a higher inflow of transfer payments. European fiscal systems are still largely national.
Germany did not decide to embark on the single currency after a careful evaluation of its economic costs and benefits. Helmut Kohl led Germany into the single currency in order to create a stronger political union in continental Europe, a political union that would have common economic, social, defence and foreign policies. The euro would be a symbol of that solidarity and a mechanism for centralising economic power.
Many Germans expected that Germany, with the largest population and the biggest economy in Europe, would be the natural leader of the unified Europe. The French assumed that monetary union would at least end the frustrating subservience of the Banque de France to the Bundesbank. More generally, many Frenchmen saw the stronger political union as a vehicle that would allow Europe to compete with the US on political and foreign policy issues as well as in economics.
Adopting the euro would be a long-term economic mistake for Britain, increasing cyclical unemployment and potentially endangering price stability by entrusting it to a European Central Bank that will soon have more than 20 voting members. It is hard to believe that there are political advantages of greater solidarity with continental Europe that can outweigh these long-term negative effects on the British economy.