EUM: Gelles/Girard/Devine

[tmurphy@xxxxxxxxxxxxxx]

	John Gelles writes on EMU:

....Terence has made
>	decent suggestions regarding my wording of the issues
>	that would align a debate very much along the lines of
>	Europa's lack of a pro-labor, green, agenda.  He allows
>	for such an agenda if its springs from the people of
>	Europe	-- without PKT advice -- I think.  I am not too
>	happy about that.
>
>	Europe may not need advice.  But we may need to
>	offer it.

.....

I believe Shaheen Fatemi, Terence Murphy and
	John Gelles do have great faith that the detailed work
	of the EU has a momentum and logic of its own. That
	if it gives lip service to "price stability and high
	employment" at the moment rather than to "zero
	unemployment and less than accelerating inflation",
	the end game is, nevertheless,  not foreclosed --
	the game that will make capitalism as democratic as
	many of us think it can and must be.	

And James Devine objects that my placing him in opposition to EMU
"...doesn't follow logically. It's quite possible I could be in favor of
the EMU as a goal but not in favor of the method in which the EMU is being
created. (Similarly, I could be in favor of abolishing drug abuse but
against the US gov't tactics and strategy in fighting drug abuse (mass
incarceration, etc.))
	

Comment:

Our problem is taking EMU from its present position to a possible future.
Regardless of what EMU is, pro-labor or pro-business, our task is to
understand how we get from where we are to where we want to be.

The end game is not foreclosed. But to shape the outcome we must work
with what the Europeans have put together. Maastricht and Amsterdam are
compromises worked out be different political parties and their
electorates. Simple put, I believe that there is no agenda that does not
spring from the people of Europe, their social and political choice.

The social democrates now in power and returning to power (Germany) have
a better chance of achieving the kind of EMU that would foster growth and
reign in inequalities.

To move from theory to practice:

Bernard Girard raises the an important kind of question -- what happens
if? -- that approach can illucidate where EMU is going, what its
potential problems are, what solutions could address those problems.

To engage Bernard's question I suggest that the asset reevaluation
occuring in Spain, Portugal, Italy, and Greece is in part a result of the
diffusion of the perception of value from a richer DM zone towards the
south. Assets are now being priced at a normative value of a larger,
richer, Europe of the DM zone. Madrid, Milan, Athens, equities and bonds,
now enjoy that new appreciation.

Can the same be true of the cost of labor? And if so, will that
appreciation of value feul inflation?

High unemployment dampens wage expectations in Spain. Productivity gains
measured against trading partners also suggest that wage increases will
be limited. Until local conditions improve, wage restraint is the order
of the day.

The second part of Bernard's question is pertinent

Should wage increases, will this cause inflation. What with the ECB do?

Inflation is now measured across boarders. No longer are we tied to the
Malthusian harness, the Bundesbank.  Wage increases in a particular
industry in Spain will have no inflationary effect on the euro. Weighted
into the mass of the combined GNP of the EMU zone, any particular move in
the smaller economies will have little inflationary impact.

The ECB is looking at 9-11% unemployment in the richest sector, Germany
and France. It is looking at below normal growth levels in those
countries. Inflation is below 2% across the zone. The ECB will not move
interest rates until there is a clear perception of inflationary
pressures across the euro zone. For the foreseeable future, those
pressures are non-existent.

 Let me conclude with another problem of practice.  There is a built-in
obstacle to the UK joining EMU. An increase in short term rates hits the
British economy more quickly than the German economy. Why?

Because British mortgages vary with rates. My question: what has to
happen within the mutual/buidling society/banking community in the UK to
harmonize British lending practices with those of the continent?

Terence Murphy