Time for another LinkSwarm!
Posts Tagged ‘Europe’
Take a look at these charts. Unemployment in Spain is up over 25%, and most have been unemployed more than 2 years. Matthew O’Brien is correct when he says that Spain’s inflexible labor laws contribute greatly to the unemployment, but errs when he says that “austerity hasn’t been the path to prosperity. It’s been the path to perma-slump.”
Austerity hasn’t failed in Spain. It hasn’t been tried.
Spain last ran a budget surplus in 2008, and since then it has engaged in deficit spending. In 2012, Spain’s budget deficit was 9.4% of GDP, and this year it will be 10.6% of GDP.
Remember, real austerity isn’t trying to tax-and-spend your way to prosperity. Real austerity is cutting budgets until outlays match receipts. Estonia bit the bullet and balanced its budget, and its economy is now growing at a steady clip. Meanwhile, governments all across Europe continue to try the same deficit spending Keynesian pump-priming, and keep having the same recession. In most of Europe, “austerity” has meant digging their own graves more slowly rather that stopping digging.
And European elites refuse to stop digging because their power and perks all stem from swaddling voters in an unsustainable cradle-to-grave welfare system.
If all this sounds familiar, that’s because it is. Europe makes the same mistakes, gets the same results, and keeps doubling down on stupid, content to keep the farce running as long as they possibly can. Instead actually of solving the interrelated problems of debt, unsustainable entitlements, and the Euro, the Euroelite seem content to preside over the world’s slowest, most boring train wreck. Yes, it’s a pity the train is sliding inexorably toward the chasm, but there’s such fine vintages to be had in the saloon car, and it offers such a magnificent view of the coming crash…
While attention was focused on the Boston bombing, Gosnell, and gay marriage, Greece just got another bailout. This is in exchange for further “austerity.”
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.
Cyprus crisis is a miniature version of the Greek crisis, and the Greek crisis is a miniature version of Europe’s crisis. The scale and details differ, but the underlying problem is mind-numbingly familiar: People spending too much of other people’s money with too little accountability. Cyprus bank bailouts are unsustainable in the same way that Greek government bailouts are unsustainable in the same way that the European cradle-to-grave welfare state is unsustainable.
How could it have been avoided? The same way any of the multitudes of financial crises that have rocked Europe in last several years could have been avoided: Don’t spend money you don’t have. That solution is both blindingly obvious and completely unacceptable to the Eurocratic elite (as well as our own liberal ruling class). After all, the bloated welfare state is where they get theirs. Nothing can be allowed to come between the permanent ruling class and their perks. Nothing.
Some current Cyprus news:
Once Greece hit the skids in 2010, it was inevitable that Cyprus would follow. Already by 2011 the government was effectively prevented from selling bonds by a junk credit rating. It resorted to a €2.5 billion ($3.2 billion) loan from the Russian government, due in 2016. The killer, though, was the pact reached in October 2011 to reduce the value of Greek government bonds by 70 percent. That produced a loss to the Cyprus banks of more than €4 billion—the same in proportion to the economy’s size as a $4 trillion loss in the U.S. President Demetris Christofias, seemingly not realizing the severity of the blow, agreed to the haircut without seeking offsetting aid for Cypriot banks. He eventually sought a bailout, but, befitting a left-wing politician who earned a doctorate in history in the Soviet Union, dragged his heels on cutting government spending while inveighing against the “troika” of the European Union, the European Central Bank, and the International Monetary Fund. Losses mounted.
Well well well, maybe David Cameron has some cobbles after all.
Cameron has generally presided over the “wettest” Tory administration the UK has seen since Neville Chamberlain, but today he delivered a veritable pipe bomb of a speech on the future of the European Union.
First, the problems in the Eurozone are driving fundamental change in Europe. Second, there is a crisis of European competitiveness, as other nations across the world soar ahead. And third, there is a gap between the EU and its citizens which has grown dramatically in recent years. And which represents a lack of democratic accountability and consent that is – yes – felt particularly acutely in Britain.
If Europe today accounts for just over 7 per cent of the world’s population, produces around 25 per cent of global GDP and has to finance 50 per cent of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life.
While Obama is certainly doing his best to make sure America’s portion of that last figure increases (driving down Europe’s share as a side effect), what Cameron is saying here is both obviously true and absolutely unacceptable to the Euroelite: The European cradle-to-grave welfare state is unsustainable.
People are increasingly frustrated that decisions taken further and further away from them mean their living standards are slashed through enforced austerity or their taxes are used to bail out governments on the other side of the continent.
Cameron basically stood up and pointed out that the Emperor has no clothes.
More of the same will not secure a long-term future for the Eurozone. More of the same will not see the European Union keeping pace with the new powerhouse economies. More of the same will not bring the European Union any closer to its citizens. More of the same will just produce more of the same – less competitiveness, less growth, fewer jobs.
“Hey dumbasses: stop digging!!”
And still more:
I want us to be at the forefront of transformative trade deals with the US, Japan and India as part of the drive towards global free trade. And I want us to be pushing to exempt Europe’s smallest entrepreneurial companies from more EU Directives.
These should be the tasks that get European officials up in the morning – and keep them working late into the night. And so we urgently need to address the sclerotic, ineffective decision making that is holding us back.
That means creating a leaner, less bureaucratic Union, relentlessly focused on helping its member countries to compete.
In a global race, can we really justify the huge number of expensive peripheral European institutions?
Can we justify a Commission that gets ever larger?
Can we carry on with an organisation that has a multi-billion pound budget but not enough focus on controlling spending and shutting down programmes that haven’t worked?
And I would ask: when the competitiveness of the Single Market is so important, why is there an environment council, a transport council, an education council but not a single market council?
And here we have a Tory Prime Minister actually sounding like…a Tory! Who would have thunk it?
Thatcher or Reagan he’s not, but this is bold stuff given the Eurocentric tenor of post-Thatcher UK governments.
Oh: He also wants a referendum on EU membership by 2017.
Reactions from the Eurocratic elite has been predictable: How dare Cameron slander our magnificently robed Emperor? And naturally all of them focus on the referendum than his substantive critique of the increasing collectivist, bureaucratic and unsustainable EU.
Good show, Cameron old boy, good show. (Golf clap)
Feeling less suicidal than usual, Greek voters have opted for the conservative (for Greece) New Democracy party in parliamentary elections, beating out the radical-left Syriza, which insisted Europe keep shoveling money into the black hole that is the Greek budget, but rejected even the fake austerity the Eurocrats demanded. New Democracy leader Antonis Samaras has his work cut out for him, convincing the Eurocrats that yes, this time, they really are implementing austerity. This time for sure!
Look for this to help forestall the inevitable “grexit” for, oh, maybe three months. Which is when I bet Greece will find out it can’t pay it’s bills again after the latest infusion of cash, the money Europe kicked in will have strangely disappeared without seeming to have been spent on any fundamental government services, and insiders will have managed to transfer another few months of funds into their out-of-country banks accounts in advance of the next crisis…
So Greeks head off to the polls this weekend to (theoretically) choose whether to muddle along with a “right” (for Greece) government that will actually attempt to carry out something vaguely resembling austerity, or for Alexis Tsipras’ far-left Syriza party, who intends to re-enact Clevon Little’s scene from Blazing Saddles: “Drop the austerity demands, or I’ll drop out of the Euro and refuse to let Germany bail us out anymore!” “Do what he says, do what he says, that Greek’s crazy!” It’s anybody’s guess whether Greece will opt to keep the farce going for another few months, or finally set the whole house of cards tumbling down.
My guess is that there are still enough insiders who can benefits from dumping PIIGS bonds onto various sets of European taxpayers, so I expect that, one way or another, the Eurocrats will find a way to keep the charade up for another two or three months.
In light of that, here’s a roundup of Euro debt news:
Have a happy weekend!
How about a nice slice of EuroDoom to ease you into the weekend?
With all the post-primary news, the European Debt Crises news has been chugging along for a while now. let’s look at some, shall we?
It’s a winner-take-all world. Countries that do well have to do a few things extremely well. Germany makes the world’s best machine tools, some of the best heavy engineering equipment, not to mention autos. German manufacturing dominates innumerable key niches. The Spanish don’t do anything well. They haven’t done anything well since the Spanish Empire outsourced its manufacturing to Flanders in the 16th century.
As a journalist told me yesterday, he worries whether the money in his pocket will be worth anything a year from now. Others worry about Germany’s increasingly negative image among recession-hit southern and eastern Europeans. Americans will understand this feeling well: you pay and pay to help others, only to have them turn on you in hatred and wrath, accusing you of horrible hidden motives and denouncing your selfishness.
Are the Greeks already printing Drachmas? So says a completely unverified tweet from a random Twitter user. Really, what better source could you possibly ask for?
The Internet is alive with buzz on Greece exiting the Euro (see #grexit for a sip from the firehose). Sadly, there seems to be no buzz at all on reigning in the cradle-to-grave European welfare state that caused the crises in the first place.
More Grext/European debt crises news:
“Growth” to social democrats means growth in government’s size and reach, not growth in the real economy. This approach directly contributed to our current predicament; and more of the same will only exacerbate it.