1 Europe’s easy-money endgame (Hans-Werner Sinn in The Guardian) The euro has brought a balance-of-payments crisis to Europe, just as the gold standard did in the 1920s. In fact, there is only one difference between the two episodes: during today’s crisis, huge international rescue packages have been available.
These rescue packages have relieved the eurozone’s financial distress, but at a high cost. Not only have they enabled investors to avoid paying for their poor decisions; they have also given overpriced southern European countries the opportunity to defer real depreciation in the form of a reduction of relative prices of goods. This is necessary to restore the competitiveness that was destroyed in the euro’s initial years, when it caused excessive inflation.
There are four possible economic and policy responses to this state of affairs. First, Europe could become a transfer union, with the north giving more and more credit to the south and later waiving it. Second, the south can deflate. Third, the north can inflate. And, fourth, countries that are no longer competitive can exit Europe’s monetary union and depreciate their new currency.
Each path is associated with serious complications. The first creates a permanent dependence on transfers, which, by sustaining relative prices, prevents the economy from regaining competitiveness. The second path drives many debtors in crisis countries into bankruptcy. The third expropriates the creditor countries of the north, and the fourth may cause contagion effects via capital markets, possibly forcing policymakers to introduce capital controls, as in Cyprus in 2013.
QE in the eurozone will bring about the inflation that Draghi wants via higher import and export prices. Whether this effect will be sufficient to revitalise southern Europe remains to be seen. There is a risk that Japan, China and the US will not sit on their hands while the euro loses value, with the world possibly even sliding into a currency war.
The southern EU countries, instead of leaving prices unchanged, could abandon austerity and issue an ever greater volume of new bonds to stimulate the economy. Competitiveness gains and rebalancing would fail to materialise and, after an initial flash in the pan, the eurozone would return to permanent crisis. The euro, finally and fully discredited, would then meet a very messy end. One can only hope that this scenario does not come to pass, and that the southern countries stay the course of austerity. This is their last chance.
2 Brazil stagnates in 2014 (Straits Times) The Brazilian economy, the world’s seventh-largest, posted near-stagnant growth in 2014, expanding just 0.1 per cent, and will likely enter recession this year, officials said.
Hosting the World Cup in June and July and gearing up for the Olympics next year failed to reverse the drag of rising inflation, a ballooning deficit and a $4 billion kickbacks scandal at state oil giant Petrobras that has tarnished Brazil’s largest company and President Dilma Rousseff’s party.
It was the fourth year of lacklustre growth for the South American giant, whose economy expanded 2.7 per cent in 2013, 1.8 per cent in 2012 and 3.9 per cent in 2011, under a revised calculation system that took effect this month. Rousseff has never managed to match the blistering 7.6 per cent GDP growth Brazil posted in 2010, the last year in office of her charismatic predecessor and mentor, Luiz Inacio Lula da Silva.
The central bank is expecting an even worse year in 2015, forecasting a contraction of 0.5 percent. Analyst Alex Agostini, chief economist at Brazilian firm Austin Rating, predicted modest growth of around 1-2 per cent in 2016 before a return to stronger growth of about 2.5 per cent in 2017.
Of the Brics group of emerging economies – Brazil, Russia, India, China and South Africa – Brazil posted the lowest growth for 2014. Russia’s economy grew 0.6 per cent, China’s 7.4 per cent and South Africa’s 1.4 per cent. Brazil, the largest economy in Latin America, also had the poorest GDP growth in the region outside crisis-hit Venezuela.
3 Why people are so mean online (Jane Wakefield on BBC) It used to be the case that people got their gossip over the garden fence or from a bit of curtain twitching. But now we have the internet and the nature of chat has changed forever.
We have all seen nasty comments online – whether they be a row on Twitter or a catty response on Facebook. The internet acts like a kind of digital-fuelled alcohol, freeing us to say things to strangers that we would never dare to say if we met them.
Dave Harte, a lecturer in media communication at Birmingham City University, believes that social media gives us a connection with each other that we are all craving. “People with shared interests come together but often they would disintegrate because the internet gives people the opportunity to say things that you wouldn’t say face to face,” said Mr Harte.
Trolling has become an established term for people who sow discord on the internet by starting arguments – and there are a lot of them around. Women seem to be particularly prone – a survey conducted by cosmetics firm Dove and Twitter found that in 2014 over five million negative tweets were posted about beauty and body image – and four out of five of them appeared to come from women.
The problem is that the nature of the internet means that within groups and the wider social networks we are all part of, people are only a few clicks away from being able to annoy frustrate or upset a whole range of people – often strangers. And for many the temptation to respond to a post they find annoying or frustrating is just too hard to resist.