Oil price plunge and possible Greek election: Clouds on the horizon or brighter days ahead ?

I am about to settle in for an evening devoted to grading my exams a twice yearly ritual that follows the end of an academic term. One always learns from reading exams. One also always learns from closely monitoring the news. These days both oil and Greece are at the centre of global economic concerns. The emerging glut of oil supplies and the willingness of Saudi Arabia and other members of the oil cartel to continue to supply the market coupled with worries about slowing economic growth in China, Europe and elsewhere has led to a sharp drop in the per barrel price of oil. The price has now fallen a long way from its previous 100 dollar plus peak. Today West Texas intermediate traded at the 63 dollar range way down from its June peak of $107 per barrel and the lowest price since July 2009. Brent crude oil traded today at $66.10 U.S.

We shall see how long this lasts, how far the price drops and its impact upon global prices-it can only be disinflationary. Given the already near deflationary environment in Europe this can only reinforce it. Consumers will benefit somewhat but will they buy more gas or other products with additional income or will they simply increase their savings and repay their debts more quickly. Environmentally cheaper gas at the pump cuts both ways. On the one hand it increases the likelihood that some car buyers will buy bigger more gasoline guzzling vehicles. On the other hand the cheaper oil prices will lead to possible suspension of projects that are no longer profitable thus eventually affecting supplies and carbon outputs.

On the Greek front the Greek Prime Minister Antonis Samaras has scheduled a new election in Parliament for a new President.His government controls 155 seats in the 300 seat parliament. If he is unable to win over 25 members of the opposition parties to vote for his presidential candidate( the president requires a super majority of 180 votes) he will be forced to call a general election whose likely winner will be Syriza a party which rejects the austerity that was imposed on Greece and has toyed with the idea in the past that they would exit the Euro if they did not get a better deal from their European partners on refinancing their debts. To their credit they also support Keynesian investment measures to lower unemployment. So the Europe euro Zone will be plunged into crisis if they are elected. But it would be a necessary crisis that might help Europe escape from the paralysing grip of austerity and hidebound excessive fear of inflation as opposed to obvious unemployment and stagnation.


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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