Thursday Reads: Crisis in Cyprus, The End of the “Creative Class” Dream, the Grand Betrayal, and Other NewsPosted: March 21, 2013
There’s quite a bit of news on the Cyprus crisis this morning. But first, last night Joe Weisenthal posted this assessment of how bad things had already gotten: In Just Days A Modern Economy Has Been Set Back 50 Years, And It May Never Be The Same Again. That’s a quote from Ciaran O’Hagan of Société Générale in Paris. Weisenthal writes:
According to reports, Cyprus will try again tomorrow to cobble together some kind of bank bailout bill that can pass parliament.
Cyprus needs to raise another 5.8 billion euros, which it could do from some combination of deposit taxes, Russian money, and pension nationalization.
None of the options are good, but until it’s done, banks will likely have to remain closed, a situation that can’t go on much longer.
This is a stunning turn of events for a modern Eurozone nation.
This morning, the news broke that the European Central Bank (ECB) has given Cyprus an ultimatum. Bloomberg reports:
The European Central Bank said it will cut Cypriot banks off from emergency funds after March 25 unless the Mediterranean island agrees on a bailout with the European Union and International Monetary Fund.
“The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance, ELA, until Monday, 25 March 2013,” the Frankfurt- based ECB said in an e-mailed statement today. “Thereafter, ELA could only be considered if an EU/IMF program is in place that would ensure the solvency of the concerned banks.”
The Cypriot parliament this week rejected a proposed levy on bank deposits to raise 5.8 billion euros ($7.5 billion), which euro-area finance ministers backed as a condition for the country’s bailout. A bank holiday in Cyprus has been extended to March 25, giving policy makers until Monday to find a compromise to prevent a collapse of the country’s banks.
“With this statement, the ECB put even more pressure on European finance ministers and the Cypriot government to come up with a deal,” said Juergen Michels, chief euro-area economist at Citigroup Inc. in London. “But we’ll have to see whether they’ll actually follow through with their threat if there’s no deal by Monday and policy makers decide to further extend the bank holiday.”
Signs the euro zone’s economic downturn is deepening and worries over a possible financial meltdown in Cyprus sent world shares, oil and the single currency lower on Thursday.
The falls could have been greater but for earlier data showing a pick-up in Chinese factory activity and the commitment by U.S. Federal Reserve on Tuesday to stick with its ultra-loose monetary policy stance.
Wall Street shares reflected the precarious balance of risks indicating a flat performance when trading starts.
But the euro and European shares moved decisively lower, with the single currency briefly dipping below $1.29 to the dollar, following weak readings of the March Purchasing Manager’s Indexes (PMIs), which showed activity across the 17-nation currency bloc slowing from already weak levels.
The data revealed that German growth was starting to suffer from the euro zone’s renewed problems and again highlighted a widening chasm with France, the region’s second largest economy.
Joe Weisenthal put it in plainer English yesterday: Europe Is A Complete Disaster, And Its Luck May Have Just Run Out.
The crisis in Cyprus is a good opportunity to take a step back and remind ourselves how incredibly broken the Eurozone remains.
For one thing, the whole reason the Eurozone has these sovereign debt crises is because while the countries share a common currency, they don’t share a common Treasury. So it is literally possible for a country to just run out of cash. That can’t happen in a country like the U.S. or the U.K., which are capable of creating their own money.
And then even beyond that, the single monetary policy isn’t helpful. The periphery needs much more stimulus, whereas Germany is worried (perhaps fairly) about bubbles, as everyone rushes cash into its borders. Plus, Germany has virtually no unemployment, so it sees no need for stimulative measures.
Economist and professor David Beckworth looked at the big picture on Monday, pointing out how the system needs some serious structural reforms to function properly.
One reform is to alter ECB policy so that it actually tries to stabilize nominal spending for the entire Eurozone, not just Germany. Since it inception, ECB monetary policy has been biased toward Germany at the cost of destabilizing the Eurozone periphery. This could be fixed by having the ECB abandoned its flexible inflation target and adopt a NGDP level target. Another complementary reform, would be to create meaningful fiscal transfers in the Eurozone similar in scale and scope to the United States. Both of these options, however, would face stiff opposition from Germany. For the former would require temporarily higher inflation than Germany desires and the former would require large fiscal commitments for the Eurozone from Germany. Neither is likely to happen.
In terms of effects of all this on the U.S., I found this piece at the Guardian interesting: Can the US trust the EU after the Cyprus debacle? The author, Heidi Moore suggests that the crisis may threaten upcoming negotiations about an EU-US trade deal. Moore writes:
The upshot is that Cyprus has become a cautionary tale in the European Union‘s most failed and yet most consistent negotiation policy: bullying.
Cyprus is small and largely unable to fight back, either politically or financially. Its shabby treatment is consistent with how the EU has treated other countries when it perceives it has the upper hand, including Greece and Portugal. In each of those cases, some members of the EU have relied on cultural stereotypes to explain why financial negotiations had to turn against a country. In the case of Greece, leaders including Germany’s Angela Merkel painted the country as full of lazy, pension-reliant, sun-worshipping Mediterranean gadabouts to justify the need for austerity. It’s not just that it’s offensive, it’s false: before the crisis raised unemployment rates, you’ll find that Greeks, Italians and Spaniards all worked longer far hours than Germans every week. Somehow those inconvenient facts get lost in the economic finger-pointing.
These EU rationales are unflatteringly tribal, and ill befit a monetary union that is supposed to be sophisticated and rational. The German intelligence agency reportedly informed leaders that Cyprus was a haven for money-laundering,which was trotted out as a bizarre reason last week that taking money from Cypriot bank accounts was a perfectly legitimate option. Cyprus’s banks have high interest rates on savings, and it is a tax haven, which has attracted “hot money” from Russia and other countries. No one in Europe complained about that when it was helping the Cypriot economy, but now that a bailout is required, the equation has changed.
The character of EU negotiations – sloppy, disaster-prone, often bullying – is important to the US, too.
Moving on to (I think) less depressing news…
Here’s a blog post from May 8, 2008 that you might recall. It was a triumphal piece by Chris Bowers at his now-defunct blog “Open Left” titled “Changing of the Guard.” Along with his predictions that Obama would govern in a completely different way than previous Democratic presidents, Bowers foresaw a “cultural shift”:
Out with Bubbas, up with Creatives: There should be a major cultural shift in the party, where the southern Dems and Liebercrat elite will be largely replaced by rising creative class types. Obama has all the markers of a creative class background, from his community organizing, to his Unitarianism, to being an academic, to living in Hyde Park to shopping at Whole Foods and drinking PBR. These will be the type of people running the Democratic Party now, and it will be a big cultural shift from the white working class focus of earlier decades. Given the demographics of the blogosphere, in all likelihood, this is a socioeconomic and cultural demographic into which you fit. Culturally, the Democratic Party will feel pretty normal to netroots types. It will consistently send out cultural signals designed to appeal primarily to the creative class instead of rich donors and the white working class.
Ah, yes…the “creative class,” by which Bowers meant young, supposedly cool (largely white) guys like himself (e.g., Ezra Klein) who would “revitalize” the Democratic Party with their “technocratic” and “not too far left” policies. The “Creative class” was a term invented by a writer and consultant with the odd name of Richard Florida. Florida wrote a book in 2004 called The Rise of the Creative Class, and has made a pile of money over the years by advising state and city governments about how to attract “hip” young “creatives” who will revitalize run down urban neighborhoods. But now even Florida himself has had to admit that his entire premise was a giant failure. Yesterday Joel Kotkin wrote about it at The Daily Beast.
Among the most pervasive, and arguably pernicious, notions of the past decade has been that the “creative class” of the skilled, educated and hip would remake and revive American cities. The idea, packaged and peddled by consultant Richard Florida, had been that unlike spending public money to court Wall Street fat cats, corporate executives or other traditional elites, paying to appeal to the creative would truly trickle down, generating a widespread urban revival.
Urbanists, journalists, and academics—not to mention big-city developers— were easily persuaded that shelling out to court “the hip and cool” would benefit everyone else, too. And Florida himself has prospered through books, articles, lectures, and university positions that have helped promote his ideas and brand and grow his Creative Class Group’s impressive client list, which in addition to big corporations and developers has included cities as diverse as Detroit and El Paso, Cleveland and Seattle.
Florida himself, in his role as an editor at The Atlantic, admitted last month what his critics, including myself, have said for a decade: that the benefits of appealing to the creative class accrue largely to its members—and do little to make anyone else any better off. The rewards of the “creative class” strategy, he notes, “flow disproportionately to more highly-skilled knowledge, professional and creative workers,” since the wage increases that blue-collar and lower-skilled workers see “disappear when their higher housing costs are taken into account.” His reasonable and fairly brave, if belated, takeaway: “On close inspection, talent clustering provides little in the way of trickle-down benefits.”
Now who could have predicted that? Actually, one clever writer did. Alec Gillis at The Progressive in December 2009–before Obama was even inaugurated–wrote a piece called The Ruse of the Creative Class, in which he basically characterized Florida as a con man and fraud.
Today Chris Bowers has some kind of job at DailyKos. He sends out e-mails trying to get people to sign petitions–that kind of thing. And President Obama went on to hire lots of former Clinton staffers and spent much more time sucking up to Wall Street than catering to “the creative class.”
According to The Hill: Dick Durbin estimates the Grand bargain odds at near 50-50.
Durbin said he is personally open to further privatization of Medicare as long a private insurers are forced to “play by the rules” that Medicare uses to lower costs, and that he realizes some of his liberal friends “are not happy” with his position.
If Obama backs cuts to entitlements, Durbin believes enough Democrats would support the president to get a bill through Congress.
“If a president comes up with a reasonable approach which ends up giving years of solvency to Medicare. … I think that many Democrats will come around to that position,” he said. Obama’s imprint on the proposal would shield many members from grassroots anger, he said….
“I think chained CPI is a real possibility, only if it crafted in the right way,” Durbin said. The proposal would have to raise the minimum Social Security benefit to the poverty level, and provide the very old with a bump up in benefits, he said.
Durbin ruled out the kind of “premium support” system for Medicare that House Budget Committee Chairman Paul Ryan (R-Wis.) has proposed.
The good news is that Durbin claims Obama won’t cut “entitlements” unless the Republicans agree to revenue increases, and that’s not likely to happen.
I’ve got several more interesting reads that I’ll pass on link dump style, since this post is getting long.
The Boston Globe has a diagram of the possible suspects in the Gardner Museum heist. Quite a few of them are already dead–and not from natural causes in most cases.
Raw Story: Ed Schultz is royally pissed at Politico for claiming that his move from weeknights to weekends on MSNBC wasn’t voluntary.
The Wrap: CNN’s Poppy Harlow is very upset that people think she would slant her coverage toward the perpetrators in the Steubenville rape case. The problem is that is exactly what she did, even if it wasn’t a conscious choice. In fact what Candy Crowley did was much worse, IMO. After all, she asked the leading questions. So why isn’t CNN apologizing? I guess it’s because they’re arrogant. But what do they have to be arrogant about?
Talking Points Memo: Former MSNBC Host Dylan Ratigan Quit New York To Work On Hydroponic Organic Farm
Business Insider: Russian Dancer Calls World-Renowned Ballet Company A ‘Giant Brothel’