A mail exchange about JP Morgan’s “The Euro area adjustment: about halfway there”, Europe Economic Research, 28 May 2013

From : Paul Jorion
Object : The Euro area adjustment: about halfway there
Date : 21 June 2013 21:33:20 UTC+02:00
To : Malcolm Barr, David Mackie

Good day MM. Barr and Mackie,

I’m writing to you as I receive several mails drawing my attention to the following paragraph of your recent May report:

“The political systems in the periphery were established in the aftermath of dictatorship, and were defined by that experience. Constitutions tend to show a strong socialist influence, reflecting the political strength that left wing parties gained after the defeat of fascism. Political systems around the periphery typically display several of the following features: weak executives; weak central states relative to regions; constitutional protection of labor rights; consensus building systems which foster political clientalism; and the right to protest if unwelcome changes are made to the political status quo. The shortcomings of this political legacy have been revealed by the crisis.”

The authors of the mails I receive are under the impression that this paragraph means that you regard “constitutional protection of labor rights” and “the right to protest if unwelcome changes are made to the political status quo” as detrimental to business. There is however a wide consensus in the community that such principles are basic to democracy.

Would you be so kind as to dispel any doubts about this, so that I can reply to the mails I received?

Should I not receive any reply from you, I would conclude that you, Gentlemen, do indeed regard some basic democratic principles as detrimental to business, and mention that fact on my blog for the education of the public.

Yours sincerely,

Paul Jorion

From : David Mackie
Object : Rép : The Euro area adjustment: about halfway there
Date : 23 June 2013 14:39:56 UTC+02:00
To : Paul Jorion


Thank you for your email.

The paragraph that you refer to is not intended to suggest that there is a clash between democracy and business and, in any case, we do not believe that to be the case. Rather, the paragraph is intended to be about the functioning of EMU.

There are many ways that EMU can be constructed. One of the key trade offs is between regional burden sharing and national level flexibility.

In principle, the region can choose any point on this trade off. For now, the region is moving towards a point on this trade off which involves a very modest amount of regional burden sharing and a lot of national level flexibility.

Against this background, some countries are struggling to make the adjustments required by this particular vision of EMU.

I hope this clarifies the point we were trying to make.

Best wishes

David Mackie


N. B. : Published with Mr. Mackie’s full approval.

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