Patrick Minford's picture
Affiliation: 
Cardiff Business School
Credentials: 
Professor of economics

Voting history

Deal or no deal: The Greece standoff

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Question 3: Do you agree that implementation of the agreement will lead to an expected decrease in Greek debt repayments?

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Answer:
Disagree
Confidence level:
Confident
Comment:
In theory yes but in practice nothing has changed: Greece will pay back little if any of its debts and the new agreement if it happens will make no difference,

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Question 2: Do you agree that Greece would be better off defaulting right now rather than signing to the agreement under consideration?

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Answer:
Strongly Agree
Confidence level:
Extremely confident
Comment:
Greece should default now and leave the euro- not the EU, since for well-known foreign policy reasons this would be awkward for all. It should decide on its own policies; it is pointless for others to dictate policy to a sovereign nation and even counter-productive. Greece must learn in its own way. Yes, there will be some confusion and 'chaos' for a time; capital controls will be needed while a new currency is put in place. Then Greece will steadily begin to recover as devaluation triggers new export demand, business confidence returns, and national self-confidence too. Some contributions will be made to service existing foreign debts which will be redenominated in the new drachma. But the overhang of impossible debt will be removed; official creditors, the great bulk now, will have to explain to their electorates that they will not get a lot of their loans back but their electorates probably already knew this.

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Question 1:  

Do you agree that, on balance, the implementation of the agreement as outlined in media reports will have a non-trivial negative effect on Greek GDP?

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
This is really not the point. This agreement if it happens- which is likely; a further dollop of euro-fudge- will continue the current bail-out series under which Greece is pressurised by the Troika to make reforms which it refuses in practice to make but pretends to do so and in return receives loans which the Troika pretend will be paid back and yet clearly neither can nor will be. Under this series Greece has gone into recession and has no real prospect of recovery. With terrible supply-side policies, business confidence gone, consumer confidence similarly gone and government demand on mere life support, Greece has no hope. The current agreement will not change this.

Monetary policy and the zero lower bound (ZLB)

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Question 2: Do you agree that the benefits of reforming the monetary system to allow materially negative policy interest rates outweigh the possible costs?

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Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
My answer above already basically covers this. Let me add a bit more about the costs of these interventionary ideas. Cash is a low-cost transaction medium, is costless to produce and in welfare terms its use should be maximised- whether to the extent of having negative inflation is still an active debate. These ideas in one way or another push in the opposite direction, making cash costlier to use. As I argue above I believe the right way to proceed is to try to improve our monetary policies while respecting this low-cost role of money and avoiding any but the most basic regulation.

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Question 1: Do you agree that it is feasible for the UK authorities to change the monetary system so that materially negative policy interest rates could be safely implemented? (In answering, you may wish to explain your reasons and define your view of 'material')

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Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
The ideas discussed here to 'remedy' the zero bound imply that it is sufficiently important to justify substantial intervention in currency institutions. I have two strong objections to these ideas. First, the zero bound is a transitory situation which applies only to the risk-free rate of interest on government short term bonds. There is no zero bound on the vast majority of credit instruments used by the private sector; nor has there ever been an episode of it that I am aware of. Monetary policy is capable of affecting the credit rate of interest by open market operations that affect bank reserves. It can also affect the exchange rate. Since the crisis the mechanism via bank reserves and credit expansion has been greatly impeded by draconian new regulation of banks; this was a serious mistake, both because this regulation has been heavy-handed and distortionary and also because it has much impeded the recovery. This view of the economy's operation is backed up by recent Cardiff empirical work on the US ('Monetarism rides again?). A further monetary remedy is to strengthen the usual interest-rate setting rule in normal times. One way to do this is to substitute a nominal GDP or price level target for the inflation target. In the paper above we show this would be highly effective in reducing the number of zero bound episodes and stabilising the economy in spite of their occasional occurrence. Second, the suggestions being made involve some costly interventions in monetary institutions- such as stamping currency. Then paying negative interest rates on bank reserves meets its own zero bound at the cost with which banks can store their cash physically; it just pushes the bound lower. These suggestions have their parallel in the advocacy of 'macro-prudential' policy which too is highly distortionary and also made unnecessary by our ability to use monetary policy remedies. In sum this route involves costs for which since there are direct monetary policy remedies available there is no justification.

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