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EUROZONE The current state of play and beyond Swiss, German and Austrian Pension Funds Meeting Zurich 30 th October 2014 Yanis Varoufakis University of.

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Presentation on theme: "EUROZONE The current state of play and beyond Swiss, German and Austrian Pension Funds Meeting Zurich 30 th October 2014 Yanis Varoufakis University of."— Presentation transcript:

1 EUROZONE The current state of play and beyond Swiss, German and Austrian Pension Funds Meeting Zurich 30 th October 2014 Yanis Varoufakis University of Athens & University of Texas at Austin

2 Historic deflation 5yr-5y inflation expectations

3 POSTMODERN DEPRESSION €zone GDP at constant prices €zone growth rate 2009 2014

4 France’s impossible arithmetic xx xx

5 Deficit and Surplus economies 2003 S-I= σ Τ -G = τ Χ - Μ = ρ σ + τ = ρ Υ =C+I+G+X-M Y=C+S+T C+I+G+X-M = C+S+T (S-I)+(T-G)=(X-M) σ + τ = ρ

6 Before the Crisis 2003-2007

7 Credit Crunch & Recession 2010-2011

8 The Fiscal Pact’s ambition 2012-…

9 Equilibrium interest rates (Taylor rule) nominal interest rate = inflation + equilibrium real interest rate + α (deviation from inflation target) + β (output gap)

10 A proposal for a non-toxic ECB-run QE PREMISES Europe desperately needs growth-inducing, large-scale investment. Europe is replete with idle cash paralysed by fear of low demand The ECB wants to buy high quality paper The ECB does not want to induce asset price inflation The ECB does not want to have to buy German or Italian or Spanish assets

11 A proposal for a non-toxic ECB-run QE ACTIONS EIB-EIF embark upon a pan-Eurozone Investment-led Recovery Program – up to 8% of GDP Funding comes exclusively from net EIB- EIB ECB stands by to enter the secondary market with purchases of EIB/EIF bonds to keep their yield constant

12 Photo by Danae Stratou www.vitalspace.org Impediments to recovery Why neither idleness nor QE will help: Global demand deficit Globally wrong corporate incentives Europe re-nationalised banking – a non-Banking Union Europe strengthened the embrace of weak banks and fragile states Neither a Great Rotation nor Recovery Not without an extra-market recycling of surpluses

13 Photo by Danae Stratou www.vitalspace.org THANK YOU


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