While attention was focused on the Boston bombing, Gosnell, and gay marriage, Greece just got another bailout. This is in exchange for further “austerity.”
What sort of “austerity” is Greece practicing? The sort that involves deficit spending at 10% of GDP, which is up from 9%. It was supposed to be cut to 7.5%.
So Greece wants more money because it can’t even keep to its previous promises on its fake austerity goals.
Let me explain it once again: Real austerity is cutting spending until it matches incoming receipts. Not reducing the rate of deficit spending. Not raising taxes so politicians can continue to spend.
No country in the EU (at least outside the Baltics) has practiced real austerity. That Forbes piece on the Baltic nations includes a lot of good advice that EU nations are largely ignoring:
Don’t run up big debts. It is a lot easier to manage when things go bad if you aren’t overextended to start. Observed Rosenberg: “Estonia’s experience shows that prudent policies during the boom may not avoid a bust, but they can put the country into a better position to deal with shocks.”
Don’t engage in an orgy of “stimulus” spending. That will run up big debts without generating long-term growth. When budgets eventually are cut, as they will have to be, the economic loss and political pain will be even greater.
Make tough decisions early. People typically are ready to act after the crisis hits. In the case of Latvia, argued Asmussen, by acting swiftly “most of the required painful budgetary decisions could be passed before the so-called ‘adjustment fatigue’ kicked in.”
Maintain fiscal responsibility. Otherwise any progress will be transitory. Growth is the natural result of reform. Delaying reform exacerbates the problem while prematurely terminating reform short-circuits the recovery.
Emphasize budget cuts. Expansive and irresponsible public outlays usually contribute to economic crisis. Moreover, the state as well as citizens should sacrifice after a crash. The answer is to cut expansive and irresponsible public outlays. In fact, economists Alberto Alesina and Silvia Ardagna found that “spending cuts are much more effective than tax increases in stabilizing the debt and avoiding economic downturns. In fact, we uncover several episodes in which spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.”
Finally, don’t rest on one’s laurels. There always is more to do. Even nations which have implemented serious reform programs, like the Baltic States, could make further improvements.
As far as I can tell, none of the core EU states (and certainly none of the PIIGS) has tried this approach since the 2008 recession hit. They keep trying Neo-Keynesian pump-priming and deficit spending to keep both the Euro and their unsustainable welfare state float, and they keep experiencing endless recession. Their fake austerity comes in slightly reducing the amount of their deficit spending enough to pretend they’re in compliance to keep the bailouts coming. Ireland hasn’t practiced real austerity. Neither has Portugal, Spain, or Italy (though Italy has come closest).
The shell game of bailouts and fake austerity will continue as long as the Eurocrats can keep getting away with it.
