Austerity is Killing Europe

[marmar]

from The Progressive:



Austerity is Killing Europe
By Amitabh Pal, April 26, 2012


The austerity fetish of those making economic decisions is killing Europe’s economy.

The last few days have provided further proof.

“Spain officially slipped back into recession for the second time in three years Monday, after following the German remedy of deep retrenchment in public outlays, joining Italy, Belgium, the Netherlands and the Czech Republic,” the New York Times reported this week.

And more bad news has followed. .................(more)

The complete piece is at: http://www.progressive.org/austerity_is_killing_europe.html

[polichick]

1. But Republicans would love to try it here.

[HiPointDem]

8. It's already going on here. State & local government spending is down 6% since the recession

began, & the decline is still ongoing.

[polichick]

10. You're right - and right-wing governors are having a field day!

[dkf]

2. Well they have no access to money. What else can they do?

The bond market is cutting them off at the signs of loosening austerity measures. I guess they could all exit the Euro and print money but inflation has its downsides also.

[4th law of robotics]

4. Pretty much this

the credit lines are drying up.

I'm not sure what they're supposed to do to avoid making cuts.

[just1voice]

5. The article suggests a few things to do

"Expansionary spending modeled on the American New Deal is one route. And an exit from the Eurozone for individual countries (such as Greece) is another."

I'll add that they could throw every Goldman Sachs linked banker into court and out of any government policy position and tell the World Bank to kiss their ass as it's well known that predatory capitalism is the very cause of what's happening. Of course that would require politicians that actually represent the people instead of financial corporations.

[dkf]

6. If a country is already in trouble with the bond market they have zero chance

of expansionary policies. So I guess the only solution is to exit the Euro.

[nadinbrzezinski]

7. There is one country that did just that

and is doing just dandy right now... bond or no bond...

Shh, none in the corporate press speaks of it... (Iceland)

[fascisthunter]

13. Awesome...

!

[dkf]

14. Iceland is still on the hook for their banks.

[badtoworse]

20. Correct me if I'm wrong.

I didn't think Iceland ever had a sovereign debt problem. They just didn't bail out the banks that were insolvent. That's not really the same thing because Iceland itself was not shut out of the debt markets.

[Ghost Dog]

25. Exactly right. Just as most European countries didn't have a sovereign debt problem

until they bailed out the banks. Spain certainly didn't. Had Iceland as a sovereign bailed out the insolvent banks with public money, it too would have a sovereign debt problem now.

There's more on this here: http://www.democraticunderground.com/111611743

... If we are forced to pay back from taxes all the vast sums that have been sucked out of public spending and given to the banks, the country will not recover for a generation.

The economic ‘plans’, forced on us without debate, are all based on the banks returning large parts of the money they have taken from us. This means, whether we like it or not, we all have to hope that the banks make profits as quickly as possible. We have all been ‘kettled’ into having to hope and work for the largest possible growth in world trade and finance. We have to hope that the rich get richer, and quickly. The lords of finance and their servants in politics decided this for us.

There never was any discussion or debate of possible alternatives when the financial crisis began. It was declared, and universally agreed (always a bad sign) that the problem was liquidity, not solvency. That meant the only answer ever proposed was to provide liquidity at all costs. Liquidity being our money to cover the massive losses they had incurred. This, we were told, wasn’t really a cost at all, but ‘an investment’. An investment which would pay back all the loaned, borrowed and printed money long before the debts came due through reinflated levels of growth and asset value...

And here: http://www.democraticunderground.com/111611741

The problem (one of them at least) is that while our leaders are banking on growth to save us, the banks are not. They are banking instead, on fear. Our leaders keep thinking if they ‘save’ the banks then the banks will help save us by investing in growth. They fail to understand that ‘invest’ is really not something high up on the global bank’s ‘to do’ list. I spoke at length recently to bankers in The City who deal in investing in raising money for Small and Medium businesses. They were unequivocal – it is getting harder not easier to raise money for such investment. The big banks and big funds are looking for short term speculative returns not slow investment returns.

When you have large and growing losses from bad debts you cannot and will not recoup and recover on the basis of wise but slow investment returns. The worse your previous debt mountain is, the greater the pressure to pursue exactly the sort of high-risk speculation that got you in trouble in the first place. If it is a choice between investing in Spanish factories or buying Spanish debt or selling CDS on that debt, the ‘smart’ bonus seeking money goes for the latter every time.

The brokerage Carmel whose study I have quoted is a good example. On page 9 of their study they say,

We began buying Spain CDS in Q4 2011… 3.5% of notional per annum –effectively an option premium on the default of Spain.

Should the Spanish crisis flare up in 2012 as we expect, we can generatea 300% return on the annual premium

300%! Investing in small and medium businesses or a potential 300% speculating on Spanish default. You choose.

Banks are banking on fear and the volatility fear causes. They are not banking on or helping to support growth. They will do the politically necessary minimum and no more. The big banks are buying up what they call fixed income instruments (bonds and other debt backed paper) and at the same time offering CDS insurance on the same. Just like they bought and sold protection on mortgages...

... The money we have given to the big banks to bail them out via all the TARPs, EFSF’s and Bond buying programmes have not been invested in growth. They have gone into betting on failure and default.

[badtoworse]

28. In retrospect, other countries, such as Ireland, might have done better by letting the banks fail

That would not have been a picnic either.

[muriel_volestrangler]

22. Iceland was never in the Euro

which has helped its position; but it did mean they didn't face the complications of how to exit.

[dkf]

32. Ironically they are thinking of getting in.

And may need to pay the UK and other customers to do so.

[cali]

9. what the heck does the world bank have to do with this?

They aren't involved in Europe at all.

And where are they supposed to get the money for expansionary spending?

[sabrina 1]

21. They can start by doing what Iceland did. It's a little late, but it's what they should have done

as soon as the whole corrupt system collapsed. They should begin by arresting the Bankers and politicians who were responsible for the collapse. They should kick out of government anyone who is part of this, which means the Goldman Sachs appointees in Greece and Spain, to start with, non-elected appointees working for the banks. They can take back their sovereign states, and start nationalizing their banks until this mess is sorted out.

The worst thing they've been doing is allowing the criminals who destroyed the system to remain in power to try to fix it.

Get back the money that is stashed in offshore havens stolen from the people. Tax the rich as much as is needed to get out of this mess, they've had a free ride for long enough.

Where is the money? What did they do with it? Where are the investigations and prosecutions?

Iceland, and now hopefully, Ireland will follow suit, is the only country making any progress since the collapse because they refused to cover for the criminals, they threw out their Government and arrested those who deserved to be arrested. Enough of this 'looking forward' and 'everyone should share the sacrifice'. No, only those who created the mess should pay for it.

[Snake Alchemist]

3. Correction: The EURO is killing Europe.

That is the root cause.

[coalition_unwilling]

15. Correction: Germany is killing Europe. Germany is the

main instigator behind the various calls for austerity.

[nanabugg]

11. something else is killing Europe also. Racism. nt.

[fascisthunter]

12. The "New Dems" will be telling us how great austerity is

oooops, I see a couple on DU already promoting the concept.

[jwirr]

16. I hate to see this happen. The hardship that was a part of the settlement in the WWI treaty was

the direct cause of the rise of Hitler. IMO this situation is dangerous.

[bhikkhu]

17. How else do you expect the "limits of growth" to look?

The basic problem in Europe (arguable, of course) is that the economic systems there were relying on continued economic growth. Every realistic model of growth shows it leveling off over the next few decades, beginning about 7 years ago.

I know there is quite a bit of controversy over whether growth must be kept up at all costs (and that "running the presses" would solve the problem), or whether a steady-state should be the goal, looking at the considerable overshoot we are currently in regarding resources.

Personally, I think the people making the decisions in Europe are managing things well, as difficult as the choices are.

[HiPointDem]

18. i expect them to look like the ruling class cutting back on their private jet use. not ramping

it up while they steal from the peasants.

[bhikkhu]

19. Inasmuch as the ruling class is the government

...that is exactly what "austerity measures" cut back. Perhaps not satisfactorily in every detail, but an overall scaling down.

[TBF]

23. It is slowly killing us as well -

and it will continue to worsen until folks wake up and realize that if you're going to have capitalism you're going to need taxation for redistribution. Unless you like watching folks die in the street of course ...

[shcrane71]

24. Please help me understand how the US could implement EU-style austerity measures.

What can the US do? Increase the retirement age? It's already one of the highest in the world.
Take away legislation that mandates paid-time-off? The US is one of the few countries that doesn't have such mandates.
Remove legislation the mandates maternity/paternity leave? What? From 6 weeks of paid leave to 2 weeks?
Get rid of healthcare for the working class under 65? Wait, we already DON'T have that.
Get rid of post-secondary help? Pell grants are such a small portion of the federal budget.
Get rid of medicare/medicaid? Great! The US working-poor will be even poorer and sicker, and the old people will die sooner.
Get rid of Social Security? It's a pay-as-you-go system whose surpluses have been used to balance budgets, and it keeps
many working people in the workforce instead of taking care of elderly parents.
Reduce the size of the VA? The VA already denies any initial claim.
Reduce the size of the military? Hrmmph! How do you expect politicians to get elected?

Fuck it. You can't get blood out of a turnip. What else can our federal government take away from a citizenry that, by in large, isn't receiving subsidies, and who send their children into the military to fight endless wars for healthcare, a paycheck, and an education.

[upi402]

26. Here's an example of how austerity HERE is backfiring on Conservatives

Example:

Construction inspectors used to focus on making buildings safe. NOW- they focus on finding legal violations that will bring $500 in fines instead of just $90 in permit fees.

How's THAT good for business conservatives?
Next they'll want us to be like Mexico or Asia and assume THEIR family wont be burned, crushed, or electrocuted in unsafe buildings.

[former9thward]

27. Where the hell are you getting that nonsense from?

Where is your link showing construction inspectors are ignoring safety violations?

[upi402]

29. please read the black parts

I did not say they are ignoring safety violations.

they ARE being forced to do more in the same time allowed... and yes, the focus toward writing citations IS increased and in some departments is required to be a higher percentage time allotment that daily inspections.

NO, I wont tell you how I know this to be a fact.

If you're uncomfortable with facts and new information, you will be unhappy here.

[former9thward]

30. Thank you for your patronizing no information reply.

[Cleita]

31. Yep, time for the Europeans to rise up and get rid of those misguided

Friedman economists.