Wednesday, April 27, 2011

Bernanke Q&A--It's All in the Framing of the Question

Ben Bernanke did his first post-FOMC Q&A. Not surprisingly he got a lot of questions regarding concerns over inflation.  Unfortunately, most of these inflation questions were premised on the assumption that inflation is always a bad outcome that must be avoided at all cost.  For example, Robin Harding of the FT asked Bernanke what the Fed could do to prevent inflation expectations from increasing.  None of the reporters seemed to grasp and Bernanke failed to explain that a period of catch-up inflation--which really is just a symptom of catch-up nominal spending--could do the economy some good without jeopardizinng long-run inflation expectations.  All the Fed would need is to set an explicit level target and run with it as I explain here.  And make no mistake, the Fed has the power to make a difference.  Just look at how successful the original QE program was in the 1930s, a time of far worse economic conditions. 

Allowing these reporters to frame the discussion the way they did is all the more frustrating given Bernanke's past research on Japan.  In that work, Bernanke calls for price level targeting (though NGDP level targeting would be better) that would allow catch-up inflation to the pre-crisis trend. Why not the same now?  If only one of the reporters had asked that question! Time for Jon Hilsenrath, Neil Irwin, Robin Harding and others Fed reporters to man up and call Bernanke on this point. Better yet, time for Bernanke to man up and do the speech Ezra Klein hoped he would do.

[Update: Niklas Blanchard, Matthew Yglesias, Paul Krugman and Marcus Nunes share my disappointment.]

Monday, April 18, 2011

Gresham's Law in the Eurozone, Again

Tyler Cowen brought up Gresham's Law in his NY Times column this past weekend:
IS a euro held in an Irish bank in Dublin, or in a Portuguese bank in Lisbon, as sound and secure as a euro in a German bank in Berlin? That apparently simple question holds the key to understanding why the euro zone may splinter and bring a new financial crisis. 

In Ireland, there has been a “silent bank run” on financial institutions for much of the last year. In February, for instance, Irish private sector deposits dropped at an annual rate of 9.8 percent. That’s largely because some depositors doubt the commitment of the Irish government to the euro. They fear that they will wake up one morning to frozen bank accounts, followed by the conversion of their euro deposits into a lesser-valued new Irish currency. Pre-emptively, the depositors send their money outside Ireland, where it still represents safe euros or perhaps sterling, accessible by bank transfers and A.T.M. cards.  This flight of capital reflects a centuries-old economic principle known as Gresham’s Law, sometimes expressed casually as “bad money drives out good money.” In this context, if two assets — euros inside and outside Ireland — are not equal in value in the eyes of the marketplace, sooner or later the legally fixed price parity will fall apart.
This reminded me of a Telegraph story back in June, 2008 that I blogged where it was alleged that Germans were hoarding Euro notes issued from Germany and dumping Euro notes issued from Southern Europe. I thought it was worth reposting:

Ramesh Ponnuru Responds to His Critics

Ramesh Ponnuru had a thoughtful piece in the National Review where he argued that the Fed needed to do QE2.  Predictably, he was criticized for not advocating hard money, not being Austrian enough, favoring central planning, and a host of other sins.  Ponnuru patiently replies to the criticisms:

Should the Fed's Expansionary Policies Be Ended?

No, but they should be more systematic. The problem with the QEs all along is that they have been rather ad-hoc and unpredictable.  This has made them less effective and politically polarizing.  Imagine how different the Fed's monetary stimulus would have been had they adopted an explicit target, preferably a nominal GDP level target.  Such an approach would have given them the freedom to do really aggressive 'catch-up' monetary easing until nominal GDP returned to the targeted trend while at the same time ensuring long-term predictability.  It also would be viewed (correctly) as constraining the Fed's power.

Instead we are stuck with the problematic QE programs that have been at best mildly effective and as result, are an easy target for critics. Thus, it is no surprise to learn from Robin Harding of the FT that the Fed is about to signal the end of monetary easing:
An end to global monetary policy easing is on the horizon, with the US Federal Reserve set to signal it will cease asset purchases at the end of June.

When the rate-setting Federal Open Market Committee meets on April 27, it is unlikely to limit its options by ruling out asset purchases beyond the second $600bn “quantitative easing” programme – or “QE2” – that is due to finish by the end of the second quarter.

Fed officials, however, know that announcing more asset purchases at the last minute would disrupt markets. Silence on a follow-up “QE3” at next week’s meeting would therefore signal that their current intention is to complete the $600bn QE2 programme and then stop.
One reason the Fed is contemplating this is because the QE programs have not delivered a robust recovery  and have become a political minefield.  This does not mean monetary policy could not do more if done right.  There is still evidence of excess money demand problem that the Fed could meaningfully address through a nominal GDP level target. With U.S. fiscal tightening nearing and Eurozone problems lingering, the Fed needs a nominal GDP level target now more than ever.

Impeccable Timing

Amidst all the U.S. budget talk last week, the IMF decided to weigh in by noting the U.S. lacked a "credible strategy" to handle its public debt.  Now Standard & Poor's has decided to pile it on by downgrading U.S. public debt from stable to negative.  From the FT:
“We believe there is a material risk that US policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns..."
Between this and the rumors of a possible Greek debt restructuring, global markets are roiling.  If this turns ugly, then Fed should be ready to accommodate the spike in global demand for dollar-denominated money.

Friday, April 15, 2011

Here We Go Again...

Desmond Lachman has a new article where does a great job comparing the current failures of ECB with those of the Fed in 2008-2009.  One comparison I would add is that the ECB's tightening of monetary policy this month over concerns about inflation is very similar to the Fed's decision not to cut the target federal funds rate in the September, 2008 FOMC meeting because of concerns about inflation. One would hope that the ECB would learn from the Fed's passive tightening of monetary policy in 2008. Here is Lachman:
Mark Twain famously observed that history does not repeat itself but it does rhyme. Considering how Europe's sovereign debt crisis is playing out, one has to be struck by Mark Twain's prescience. For the Europen sovereign debt crisis bears an uncanny resemblance to the 2008-2009 U.S. financial crisis. And it gives every indication of having the potential to shock the global economy in a manner not too dissimilar from the way in which the U.S. subprime crisis did.


Apparently not learning from Mr. Bernanke's monetary policy mistakes in the run up to the U.S. crisis, Mr. Trichet now appears intent on compounding the Eurozone's sovereign debt crisis by having the ECB start an interest rate tightening cycle. For the last thing that Europe's periphery needs right now is higher European interest rates and the associated Euro strengthening at the very time when the periphery is engaged in draconian budget tightening and in a major effort to restore international competitiveness.

Yet another disturbing way in which the Eurozone debt crisis resembles the earlier U.S. subprime crisis is the way in which European policymakers are engaging in self delusion. They do so by fooling themselves that the problems with which they are dealing are ones of liquidity rather than solvency. And at each stage of the crisis they manage to convince themselves that they have ring-fenced the crisis.


In May 2010, at the time that the U.S.$140 billion IMF-EU bailout package for Greece was announced, markets were asked to believe that Greece's case was sui generis. They were also asked to believe that the Eurozone's periphery was suffering from only liquidity problems and that these problems would soon dissipate once market confidence was restored. Yet six months later the IMF and EU had to bail out Ireland. And today nobody doubts that Portugal will soon have to be bailed out as well.

Despite record high interest on the sovereign bonds of Europe's periphery even after massive IMF and ECB support, European policymakers keep up the charade that Greece, Ireland, and Portugal do not need a debt restructuring. And despite Spain's serious problems of external over-indebtedness, a major housing bust, and a highly troubled savings and loan sector, European policymakers are asking markets to seriously believe that Spain will not be the next domino to fall.

Perhaps the most disturbing aspect of the Eurozone debt crisis today is how little European policymakers are asking of the European banking system to raise additional capital to cushion itself against the inevitable large write down in the periphery's sovereign debt. In that respect too they are providing additional evidence for George Santayana's adage that those who do not learn from history are bound to repeat it.

Monday, April 11, 2011

Scott Sumner is Alive and Well

He returns in a Bloomberg news story that calls on the Bank of England to abandon inflation targeting:
The Bank of England should consider replacing its inflation-targeting regime with one focusing on nominal gross-domestic-product growth, U.S. economist Scott Sumner said.  Targeting nominal GDP growth, which is not adjusted for inflation, would clarify the bank’s mandate and lessen its reliance on unreliable price indicators, Sumner, an economics professor at Bentley University in Waltham, Massachusetts, said in a report published today[.]


Inflation is “measured inaccurately and doesn’t discriminate between demand versus supply shocks,” Sumner said in a telephone interview. “Inflation often changes with a lag and sometimes when you go into recession, it doesn’t change very easily, but nominal GDP growth falls very, very quickly, so it’ll give you a more timely signal stimulus is needed.”

The U.K. central bank should target annual nominal GDP growth of about 4 percent to 5 percent, Sumner said. This would also lead to a better coordination of monetary and fiscal policy, he said. The Office for Budget Responsibility, the British government’s fiscal watchdog, last month cut its forecast for 2011 economic growth to 1.7 percent from 2.1 percent. 

The U.K. government shouldn’t be in a position where it is “reluctant to cut the budget deficit because of fear of the effect on the recovery,” Sumner said. “With nominal GDP targeting, you have the assurance that any slowdown in nominal GDP due to budget tightening can be offset by monetary policy.”
This last point seems particularly relevant to the U.S. economy now.  Hopefully, any contractionary effect from the current budget deal will be offset by the Fed. It sure would be easier for the Fed to do so  if  it had a nominal GDP level target.  Just saying.

Update: Here is the paper by Scott Sumner that motivated the above Bloomberg story.

The Best Way to Narrow the Fed's Mandate

I have a new article up at National Review Online where I argue that the best way for Congress to narrow the Fed's mandate is through nominal GDP level targeting.  One point mentioned in the piece is that because a nominal GDP target ignores aggregate supply shocks it dominates an inflation target.  This applies equally well to a price level target.  Another way of thinking about this is that movement in the price level is a symptom of all underlying shocks, whereas movement in nominal spending is an underlying shock itself (i.e. an aggregate demand shock).  The Fed will be far more effective if responds directly to the underlying shock over which it has influence--the aggregate demand shock--than responding indirectly to an imprecise symptom of that shock.

The importance of nominal spending shocks can be seen in the three figures below.  The first  figure shows the growth rates  of nominal GDP with the blue line, real GDP with the red line, and the GDP deflator (i.e. inflation) with the green line.  The figure reveals that changes in nominal spending get translated largely into changes in real economic activity.  (See Marcus Nunes for more analysis on this figure.)

 The next figure shows the relationship between a crude measure of nominal GDP shocks and the output gap for the period 1957:Q1-2010:Q4.  The shock is calculated as the difference between the year-on-year growth rate of nominal GDP and a rolling 10-year average of the year-on-year nominal GDP growth rate.  The idea here is that the 10-year rolling average provides a forecast for the current nominal GDP growth rate.  Any deviation from that forecast is a shock.  Here is the figure:

The figure shows a remarkably close relationship between nominal spending shocks and the 1-quarter lag output gap.  The same shock series is then constructed for the GDP deflator and plotted against the lagged output gap. Here is the result:

Price level shocks are barely related over this long sample.  If anything the nominal GDP shock series probably understates the importance the shocks given how crudely they are constructed But the point is made:  it makes more sense for the Fed to target the nominal GDP level than inflation or the price level.

For more on nominal GDP targeting see these previous posts:

Thursday, April 7, 2011

The Countdown Has Begun for the Eurozone Breakup

The ECB decided to raise interest rates today, despite the strain it is going to put on the Eurozone.  Michael T. Darda explains in the WSJ what this could mean for the currency union:
If the ECB starts to tighten policy as expected, it could be a "lights out" situation for the beleaguered European periphery and a potential threat to the euro zone itself.
In more blunt terms, this move may have begun the countdown to the Eurozone breakup.  It is hard to see how else this can turn out.  The Germans--the folks who really call the shots in Europe--are reluctant to see the needed debt restructuring in the periphery and are equally reluctant to provide bailouts large enough to fix the problem. So far the Germans have been kicking the can down the road on these issues. With ECB monetary policy now tightening they will soon run out of road to kick the can down.

Maybe the breakup was inevitable from the start and this is just hastening that outcome.  After all, the Eurozone is not an optimal currency area (OCA).  But if Europeans do want to save their currency union the ECB should be easing monetary policy not tightening it.  Doing so would make it far easier to make the structural adjustments necessary to bring the Eurozone closer to an OCA.  How so?  Here is Darby again:
To understand why, we need to recognize the depth of the hole from which the euro-zone economy is trying to emerge. Nominal GDP, a proxy for nominal income and the tax base, is a staggering 10% below its pre-bubble, post-bust trendline. If anything, this would call for more support, not less, from the ECB... Europe's fiscal bailouts, which began last spring, have transferred resources from stronger countries in the core of Europe to weaker ones in the periphery. They have bought some time, but they are not a substitute for nominal demand in aggregate, which is why debt stresses persist.
Another reason why ECB easing would help is that it would lead to a real appreciation in the Germany and and a real depreciation in the periphery.  This would increase the periphery's external competitiveness relative to the core's and thus allow them to run current account surpluses.  Such surpluses would make it easier for them to manage their debt. But apparently ECB leaders don't see things this way.  And sadly, they probably don't care what some blogger from Texas thinks about their monetary policy.  Maybe, though, they might listen to one of their own:

Wednesday, April 6, 2011

The National Review on Monetary Policy

Ramesh Ponnuru is a breath of fresh air.  Unlike many conservative commentators who get lulled in by the siren song of hard money, Ponnuru takes an informed and nuanced approach to monetary policy. He understands that currently there is an excess demand for safe, liquid assets that is preventing a robust recovery. He believes the Fed should be addressing this problem.  In his latest National Review article, he once again makes this case.  Here are some excerpts:
More important — and more disturbing — is that it is not at all clear that we have learned from the mistakes of the 1930s. Those central bankers believed that money was easy because interest rates were low and the monetary base (the supply of money under the Fed’s control) had expanded. They worried that further easing would reduce confidence in the dollar. British economist R. G. Hawtrey, writing in the late 1930s, described the climate of opinion in his country at the start of the decade: “Fantastic fears of inflation were expressed. That was to cry ‘Fire! Fire!’ in Noah’s Flood.” The economy was actually deflating, not inflating. Under the influence of the “real-bills doctrine,” some central bankers believed that the money supply should respond only to traders’ need for credit. Anything else would only fuel speculative excess.

Today’s inflation hawks employ the same reasoning that those firefighters did. And they are not wholly wrong. Easier money can lead to a destabilizing run on the currency. Inflation can be associated with low real interest rates and an expanded monetary base. But not always: Not in the 1930s, and almost certainly not today, either. The late Milton Friedman, perhaps the most famous inflation hawk of his generation, spotted the fallacy in his analysis of 1990s Japan: Low interest rates can also be a symptom of an excessively tight monetary policy that has choked off opportunities for growth. A looser policy, by increasing expectations of future economic growth, could actually raise real interest rates.
I coudln't agree more.  The neutral interest rate tends to go down in a weak economy.  The neutral interest rate estimates of Laubach-Williams confirm this is presently the case.

So what should the Fed do? His answer makes my day:
[The] Fed policy should aim to stabilize the growth of nominal spending — roughly, the total value of the economy in current dollars.... That policy is superior to trying to grow the base at a steady rate, a much-discussed idea in the past, because it allows the base to change in response to changes in the money multiplier and velocity. It is superior to trying to hold inflation constant because it allows the price level to respond to changes in productivity. It would create a stable environment in which economic actors could make their decisions and contracts.
He goes on to explain why having a stable nominal spending or income environment is important:
 Most debts — notably, most mortgage debts — are contracted in nominal terms, with no inflation adjustment. If people are used to 5 percent growth in nominal incomes each year and make their arrangements accordingly, then an unexpected drop will make their debt burdens heavier and also make them reluctant to make plans for a suddenly uncertain future.
That’s what happened during the recent crisis. Scott Sumner... often notes that in late 2008 and early 2009, we saw the sharpest fall in nominal income since 1938. In his view, much of what we think we know about the recession of 2007–09 is wrong. Not only has money not been loose since the crisis began, but tight money is the fundamental reason the recession was so severe and the recovery has been so halting. He argues that it was more fundamental than the housing bust, since residential-construction employment started falling long before the crisis hit.
Based on this understanding, Ponnuru reinterprets monetary policy over the past few years:
An alternative theory of the crisis goes something like this: While a recession may have been inevitable, it was the Fed’s passive tightening that made it a disaster. The recession began in late 2007, although many observers knew it only after the fact. The Fed passively tightened mildly in mid-2008. In the fall of 2008, the financial crisis caused velocity (and the money multiplier) to drop dramatically — in part, perhaps, because political and financial leaders were scaring everyone. The Fed did not act aggressively enough to accommodate the increased demand for money balances, and what had been a mild recession became a severe one.
As panic subsided, velocity stopped falling, and the economy then began to recover. But in mid-2010, the eurozone crisis resulted in a flight to the dollar. Increased demand for dollars again had a contractionary effect, and the Fed took months to respond to it. Finally, in the late summer, it began letting it be known that it would dramatically increase the money supply — an initiative called quantitative easing, or QE2, the first QE having been the injection of money into the financial system in late 2008 — and then, in the fall, it followed through.
This is the same story us quasi-monetarists have been making for some time. Actually, Ponnuru himself should be called a quasi-monetarist.  This is not the fist time he has taken a quasi-monetarist view on the pages of the National Review.  If only he could convince the Republican leadership to adopt the quasi-monetarist view. Then we could start thinking about a robust recovery.

Tuesday, April 5, 2011

There is No Great Stagnation in the Durables Sector

That is what Noah Smith finds when he graphs TFP by durable and nondurable sectors.   Here is the stunning figure he provides:

 Here is Smith:
From this graph, it definitely looks like something big did happen to technological progress. But it looks like it happened not in 1973, as Cowen claims, but a decade earlier. In the 15 years to 1963, the two sectors progressed pretty much in tandem. But sometime in the early- to mid-60s, they diverged wildly, with nondurables TFP rising anemically through the late 70s and then basically flatlining until now. Durables TFP looks to have suffered its own very minor slowdown in the mid-70s (which is probably the reason why overall TFP looks like it took a turn around that time), but then exploded with unprecedented vigor after '93.
Smith is responding to an earlier post of  mine that Tyler Cowen linked to yesterday.  In that post I showed using John Fernald's data that the TFP growth rate had slowed down dramatically since 1973.  Using the same data set, Smith shows us the Great Stagnation only is true for nondurable output.  For durable output there never is a slowdown.  How do we make sense of this finding?

Monday, April 4, 2011

How QE2 Worked

Paul Krugman has a post explaining the monetary policy transmission channels for QE2. His explanation is that there was a rise in wealth effect-driven consumption spending via the rising stock market and a rise in foreign spending on the U.S. economy via the depreciated dollar.  While true, there is a far richer story to tell with the portfolio rebalancing channel of monetary policy. Here is how I described it before:
Currently, short-term Treasury debt like T-bills are near-perfect substitutes for bank reserves because both earn close to zero percent and have similar liquidity.  In order for the Fed to get investors to spend some of their money holdings it must first cause a meaningful change in their portfolio of assets.  Swapping T-bills for bank reserves will not do it because they are practically the same now. In order to get traction, the Fed needs to swap assets that are not perfect substitutes.  In this case, the Fed has decided to buy less-liquid, higher-yielding, longer-term Treasury securities.  Doing so should lower the average maturity of publicly-held U.S. debt.  It should also overweight investor's portfolios with highly-liquid, lower-yielding assets and force investors to rebalance them.  In order to rebalance their portofolios, investors would start buying higher-yielding assets like stocks and capital.  This would ultimately drive up consumption spending--through the wealth effect--and investment spending.  The portfolio rebalancing, then, ultimately cause an increase in nominal spending.  Given the excess economic capacity, this rise in nominal spending should in turn raise real economic activity.  
Note that the rise in stock prices and the drop in the dollar's value all  occur as result of the portfolio rebalancing above.  This description so far, however, is incomplete because it ignores the effect of expectations on the portfolio adjustment channel:
If the Fed could convince investors that it is committed to the objective of higher nominal spending and higher inflation... then much of the rebalancing could occur without the Fed actually buying the securities.  For if investors believe there will be a Fed-induced rise in nominal spending that will lead to higher real economic growth and thus higher real returns, they will on their own accord start  rebalancing their portfolios toward higher yielding assets. Likewise, if investors anticipate higher inflation, then the expected return to holding money assets declines and causes them to rebalance their portfolios toward higher yielding assets.  In other words, by properly shaping nominal expectations the Fed could get the market to do most of the heavy lifting itself.
What is remarkable is that QE2 has done as much as it has given that (1) the U.S. Treasury has been undermining QE2 by increasing the average maturity of the U.S. debt and (2) QE2 being implemented in a less than optimal fashion.  It must be that QE2's ability to rebalance portfolios and improve the economy has come largely from its changing of  expectations as outlined above.

Update I: Here is a figure showing how QE2 has changed expected nominal spending growth:

While there is a marked improvement, the need for catch-up growth to return  nominal spending to its trend means the rise in expected nominal spending growth is far from adequate.

Update II:  Marcus Nunes shows that Fed policy (including QE2) over the past few years  has been constrained by the "memory-less" nature of inflation targeting.

How Would ECB Easing Help the Eurozone?

In my previous post I argued the ECB could help the Eurozone not just by refraining from interest rate hikes, but by easing monetary policy.  I said doing so would lead to a real appreciation in the core economies of Germany and France and a much needed real depreciation in the periphery.  This would not solve the periphery's problems, but it would make them more manageable.  This is an argument I fist heard from Ryan Avent and I find it compelling.  Let me explain it in more depth.

If the ECB were to ease monetary policy, it would cause inflation to rise more in those parts of the Eurozone where there is less excess capacity.  Currently, there is less economic slack in the core countries, especially Germany.  The price level, therefore, would increase more in Germany than in the troubled periphery.  Good and services from the periphery would then be relatively cheaper.  Thus, even though the exchange rate among them would not change, there would be a relative change in their price levels.  This  would make the Eurozone periphery more externally competitive.  

Again, the relative price level change would not be a permanent fix to the structural problems facing the Eurozone--it is not opitmal currency area and there needs to be some kind of debt restructuring in the periphery--but it would provide more flexibility in addressing the problems. Tightening monetary policy, on the other hand, would only make matters worse.   Fortunately, more folks are raising their voices against the ECB tightening monetary policy.

Ultimately, what will happen to the Eurozone will depend on what the Germans want.  As Rebbecca Wilder notes, Germany is not thrilled about debt restructuring in the periphery.  Meanwhile, Germany also remains opposed to large-scale bailouts that would be needed in the absence of such debt restructuring.  Finally, Germany does not want to ease monetary policy in the manner described above.  This has to end.  Germany cannot keep kicking the can down the road forever. 

Friday, April 1, 2011

Is This How The ECB Thinks?

J├╝rgen Stark is a member of the executive board of the European Central Bank.  He has a piece in the Financial Times that makes me wonder if the ECB really understands what it is doing.  Stark goes after commentators who question whether the ECB's monetary policy has been appropriate for the Eurozone.  He may be responding to folks like Ryan Avent, Kantoos, and myself who have argued that easier monetary policy would be in the best interest of preserving the Eurozone.  Doing so would cause a real appreciation for Germany and France while allowing a much needed real deprecation for the Eurozone periphery.  Unfortunately, he misses this important point and makes some rather astounding claims.  This one in particular was amazing:
My first reason for rejecting the commentators’ view is that in a monetary union, when setting interest rates, the central bank cannot do any better than take an area-wide perspective. This applies to any central bank. Consider the Federal Reserve: it cannot tailor its interest rate to the specific economic conditions in, say, Texas or California. Likewise in Europe, any attempt to favour national over eurozone developments would jeopardise the remarkable success of the single monetary policy in the eurozone: price stability in 17 countries and for 331m people. 
This is absurd.  It is widely known that ECB monetary policy does not take an area-wide perspective,  but rather targets the German and French economies because of their disproportionate size in the currency union.  Studies have shown the ECB does a good job stabilizing these core economies, but is destabilizing when it comes to the currency union's periphery. David Wessel recently made this point with the following figure.  It shows the difference between the Taylor Rule interest rate and the actual short-term interest.  The smaller the difference the more appropriate the stance of monetary policy. 

As you can see the interest rate gap is small for France and Germany and large for the troubled peripheries.  In fact, monetary policy was too loose in the early-to-mid 2000s and probably fueled some of the economic imbalance buildup in the peripheral economies.  Now monetary policy is too tight for them.  Does Stark really think the ECB was ever targeting anything other than the core countries? If he does and if his views are representative of the ECB leadership then the Eurozone days truly are numbered.

So what is Stark's solution to the current Eurozone crisis? Here are his solutions:  
All eurozone countries need to implement the long overdue structural economic and financial reforms, enhance their competitiveness and rapidly restore sustainable public finances... [this] requires downward unit labour cost adjustments in countries with high unemployment and major competitiveness problems; it also requires all national fiscal and supervisory policies to avoid any build-up of imbalances and boom-bust cycles. 
In other words the peripheral countries need to suck it up and endure some structural and deflationary pain.  Never mind that some of these countries imbalances were acquired because of the inappropriate monetary policy in past years.  Is this really the way the ECB thinks? I hope not.