Professor Steve Keen was on Tonight with Vincent Browne in Ireland last week, where the topic understandably was the European Union. The question for Steve was how the Maastricht Treaty fits his economic paradigm, which follows Hyman Minsky’s Financial Instability Hypothesis. Below is a 10-minute clip from the show. Here, Steve says he wrote back in 2000 that the Maastricht Treaty was “a suicide pact for European leaders because it was written in the belief that there would never be a serious financial crisis.” He says European governments would be unable to respond to one if it happened because of the strictures of the single currency. This is certainly what we have witnessed.
Steve’s site also points us to the full program if you click here.
Vincent Browne has a very good show where he asks provocative questions. For example, last September I caught an episode where he and his guests explore whether Ireland should abandon the euro. Browne has been extremely critical at the way Ireland has handled the crisis because cuts in public service have not been balanced by bondholder haircuts. For Browne at his questioning best, see this clip in the middle of my post asking “Why are Irish taxpayers bailing out unsecured bank creditors?“
P.S. – I should note that Steve also mentions the spectre of ‘nationalism’ as something that looms large. I agree with him and I have written about this often. If the policies of austerity are carried forward as seems likely, eventually Economic nationalism will rise up and cause a clean break with an unpredictable outcome.
On Steve’s domestic currency idea, the key to getting it to work is that the new domestic currency be one acceptable to pay federal taxes in Ireland. Now, that will get it to be accepted. Depreciation is inevitable in this scenario in my view, however. For more on this, see my post on How and why Greece will leave the euro zone.
This post originally appeared at Credit Writedowns and is posted with permission.