Posts Tagged ‘European Debt Crisis’

Spain IS Beyond Doomed, But It’s Not Practicing Real Austerity

Tuesday, April 30th, 2013

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…

Greece: More Bailouts, More Fake Austerity

Wednesday, April 17th, 2013

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.

Mid-Day Cyprus Bailout Update for March 26, 2013

Tuesday, March 26th, 2013

News keeps on churning…

  • Your live Cyprus bailout tracker. Some tidbits: British ex-pats are pulling their funds from Mediterranean banks. Also, bank managers in Cyprus have been given EU documents specifying how much money they can allow people to withdraw, only the documents have €xx where it says how much they’re allowed to withdraw. (Or maybe they’re just using Roman numerals, and the amount is 20 euros…)
  • Switzerland: We’re not stopping any money flows from Cyprus
  • “Given what we know now we can safely say no European Bank, or Government issued debt is safe. It is time to flee any investments in the EU financial institutions, most of which are over loaded with the useless Government paper they were forced to buy to improve their capital ratio’s. If you have deposits in the EU, they are not safe from Government seizure, Greece, Italy, Spain, Portugal and Ireland are the front line risk, but the rest of Europe can not be considered secure. If you are a holder of any form of European Bank security, exit it fast. Many countries in Europe are on thin ice in terms of debt, and the ECB will not help.”
  • “No matter what the specific outcome from Cyprus over the weekend, Europe has now completely lost its ability to manage its debt crisis.
  • What it’s like to live in a cash economy with no cash.
  • The Euro bailout Hall of Shame. So far…
  • Lessons from the Cyprus Bailout

    Tuesday, March 26th, 2013

    So the Cyprus crises is “solved,” for values of “solved” that means “everyone but bankers and Eurocrats get screwed.”

  • “The message that stakeholders of all stripes can be coerced into helping a cash-strapped nation may make investors more skittish they’ll be targeted if Slovenia, Italy, Spain or even Greece again is next in line to need help. The risk is that bank runs and bond market selloffs become more likely the moment a country applies for a new rescue.” A funny definition of the word “helping.” Like “helping” a mugger holding a gun to your head.
  • And just in case you think I’m exagerating: Cyprus is seizing money from people at the border.
  • “Why would anybody keep more than €100,000 in a Greek or a Spanish or an Italian bank?…In short, the Dijsselbloem plan was a plan to bankrupt southern European banks and make southern European euros worth less than northern European euros. In case you were wondering, this is the farce stage of the euro tragedy.”
  • UKIP Leader: Get your money out of Spain while you have the chance:
  • “If we are seeing the limits of German willingness to support eurozone bailouts when the numbers don’t matter, what will happen when the numbers do matter very much?”
  • Legal Insurrection has a few more lessons.
  • The European cradle-to-grave welfare state is unsustainable. It’s only a matter of how many trillions will be destroyed before the world is willing to face that fact.

    Quick Cyprus Update for March 21, 2013

    Thursday, March 21st, 2013

    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:

  • Four days left until the next end of the world.
  • Background on the Cyprus crisis.

    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.

  • Russia to Cyprus: Die in a fire.
  • Explaining the Cyprus crisis like you’re an idiot.
  • It’s Crazy Stan’s Discount State Assets Stand! Everything must go!
  • Today’s Mid-Day Cyprus Roundup

    Tuesday, March 19th, 2013

    Update: REJECTED!

    Imagine a basketball being swatted back into Angela Merkel’s face…

    A few updates on yesterday’s Cyprus bank deposit seizure story.

  • Supposedly the votes aren’t there to ratify the money grab. Which may mean that Angela Merkel and the EU will just keep twisting until the “proper” decision is arrived at.
  • “A one-time, ad hoc seizure of money isn’t a tax. It is confiscation. Or we can use a plainer word for it: theft.”
  • “The decision to expropriate Cypriot savers—even the poorest—was imposed by Germany, Holland, Finland, Austria, and Slovakia, whose only care at this stage is to assuage bail-out fatigue at home and avoid their own political crises.”
  • The Cyprus crisis as a pick-your-own-oath adventure. That’s almost as retro as fiscal restraint and balanced budgets.
  • The New York Times says not to worry about Cyprus. OK, now I’m really worried.
  • The EU creditor states have at a single stroke violated the principle that insured EU bank deposits of up $100,000 will be guaranteed come what may, and in doing so they have more or less thrown Portugal under a bus.

    They have demonstrated that the rhetoric of EMU solidarity is just hot air, that they will not force their own taxpayers to share a single cent of clean-up costs for the great joint venture of monetary union – in which northern banks, insurers, pension funds, and indeed governments, were complicit.

    Their refusal to pay is entirely understandable in one sense – and if I were a German taxpayer, I would not care to swallow these losses either – but then the leaders of these creditor countries can hardly expect the world to believe that they will in fact do whatever it takes to hold EMU together. Quite obviously, they will not.

    The sooner this is made clear, the better. The sooner they take the proper course of withdrawing from EMU and organise the break-up the euro in the least disruptive way, the sooner Europe can recover.

    It Begins

    Monday, March 18th, 2013

    Chances are pretty low that you haven’t heard that the EU has decided to seize portions of people’s bank accounts in Cyprus as a condition of a bank bailout:

    When Cyprus’s banks reopen on Tuesday morning, every depositor will have some of his or her money seized. Accounts under 100,000 euros will have 6.75% of the funds seized. Accounts over 100,000 euros will have 9.9% seized. And then the Eurozone’s emergency lending facility and the International Monetary Fund will inject 10 billion euros into the banks to allow them to keep operating.

    It’s hard to express in words just how bad an idea this is. Europe has truly crossed the Rubicon.

    “The establishment of the principle that a government can, and at times of economic strain must, help itself to your savings, and that this is a legitimate tool of statecraft, ought to provoke riots.”

    I’ll go further: riots are not enough.

    If I were one of the people having my wealth confiscated, the proper response to such actions would be join an angry mob hanging the still-twitching bodies of the people who proposed and passed such a measure over the nearest lightpost.

    Think it can’t happen here? Remember, liberals have already floated the idea of seizing your 401K.

    The Eurocrats in Brussels have already decided that they would prefer to seize people savings rather than let the Euro fail, or admit that the European cradle-to-grave welfare state is unsustainable. “The dream of political union matters more to Europe’s governing caste than the well-being of the people they represent.”

    I didn’t post anything yesterday because I was trying to figure out how much money I should put into gold and silver to get ahead of the European bank runs I half anticipated. Indeed, in this case such bank runs would etirely rational But they haven’t started outside Cyprus itself.

    Yet.

    More Cyprus news here.

    David Cameron Suddenly Remembers He’s a Tory

    Wednesday, January 23rd, 2013

    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.

    Also this:

    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.

    And this:

    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.

    Still more:

    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)

    The Myth of “Bloated Greek Defense Spending”

    Tuesday, July 17th, 2012

    In order to divert attention away from the economic, moral, and political bankruptcy of Europe’s cradle-to-grave welfare state, some liberals, relying on figures from the Out of Our Ass Institute of Statistics, are tying to claim that Greece’s excessive spending comes from a “bloated defense budget.”

    Try again. Greece only spends 5.5% of it’s budget on defense:

    Either Europe (and the United States) must reform their runaway, bloated welfare states, or their welfare states will bankrupt their nations.

    Greece Opts To Continue to Euro Shell Game

    Sunday, June 17th, 2012

    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…