Kevin O’Rourke of Oxford University has a post on Project Syndicate, correctly titled A Summit to the Death, in which he nicely summarizes the recent EU “summit to end all summits” held at Brussels. He says
With this in mind, the most obvious point about the recent summit is that the “fiscal stability union” that it proposed is nothing of the sort. Rather than creating an inter-regional insurance mechanism involving counter-cyclical transfers, the version on offer would constitutionalize pro-cyclical adjustment in recession-hit countries, with no countervailing measures to boost demand elsewhere in the eurozone. Describing this as a “fiscal union,” as some have done, constitutes a near-Orwellian abuse of language.
As, FT Alphaville put it appropriately, “Do you believe in Merkels?”
It’s a dark age for Macroeconomics, as Paul Krugman put it – except for a few like Stephen Kinsella (from the Univesity of Limerick, Ireland), who is taking up the challenge of making stock-flow coherent models more practical and using them to come up with policy proposals, scenarios under different policies, etc for the Irish economy. Here’s an interview by INET
Here’s a nice paper by him titled Words to the Wise: Stock Flow Consistent Modeling of Financial Instability, with the background thoughts in the interview.
Update: Paul Krugman quotes the same point from Rourke’s post and calls the Euro Area “Orwellian Currency Area”