When Austerity Meets Reality

N1AK

In general I believe that going a depression, or recession, is generally not the best time to cut government spending. That said there are two important factors in play within the UK:

1. We didn't use the previous period of sustained economic growth to build up reserves and prepare for a financial crash. Both Labour and the Conservatives were pushing the 'austerity' agenda prior to the election because they knew that just ploughing on through wouldn't work.
2. The conservatives want to decrease the size of the state. The financial situation makes cutting jobs, freezing pay etc less politically suicidal. They can push this agenda for most of the parliament and then be a bit more optimistic going into the next election. Cutting jobs, even if it is the rational choice, is not viable for a government normally.

pqrdef

HAMISH_MCTAVISH wrote: »

For a neo-nazi party like Golden Dawn to win 21 seats in a modern European parliament is simply not acceptable.

Extreme situations produce extreme consequences. What will it take for Europe to notice what it's done to Greece?

The German idea of how to manage the euro has been a disaster for half of Europe. There can't not be political consequences. People aren't just going to shrug and say, ok, let's be dirt-poor while the Germans get rich, they're so much more deserving than us.

ILW

pqrdef wrote: »

Extreme situations produce extreme consequences. What will it take for Europe to notice what it's done to Greece?

The German idea of how to manage the euro has been a disaster for half of Europe. There can't not be political consequences. People aren't just going to shrug and say, ok, let's be dirt-poor while the Germans get rich, they're so much more deserving than us.

Is it not simply that the Greeks have an inflated opinion of what they are worth.

Just because they joined the Euro they seemed to expect to have a similar financial status to the average German.

As has been shown, this is not the case.

Generali

HAMISH_MCTAVISH wrote: »

With all the focus on abstract economic theories, much is forgotten about reality.

Political reality in particular.

Austerity without growth was never going to be politically sustainable. And that which is unsustainable, cannot be sustained.

And lest we forget just how much more is at stake than a paltry few percent on some investment return somewhere.

All starting to sound a tad too familiar....

http://www.theaustralian.com.au/news/world/bitter-pill-europeans-wont-take/story-e6frg6ux-1226347229072

There is only one question really. If not austerity for countries like Greece that can't borrow in the markets, who will foot the bill for the extra Government spending required?

If the PIIGS countries were to be given 5% of GDP each to avoid austerity, that's a total bill of $213,000,000,000 a year. (GDP figures are all from the World Bank via Google).

Germany seems to be in the frame in most people's minds to pay this bill. German tax revenues are predicted to be $775,000,000,000 this year (link - FX rate = 0.77). How do you think the Germans would react to taxes increasing by 28% to prevent austerity in other countries?

If you guys were to share the bill, the UK took about £550,000,000,000 = $880,000,000,000 (FX rate = 1.6) so you could each see your tax burden by about 13% across the 2 countries.

Of course that assumes that Hollande doesn't decide that he wants a slice of that nice pie. 5% of France's GDP on top would add another $128,000,000,000 to the bill meaning the UK and Germany would have to increase the tax take by 20%.

The problems aren't with the austerity so much as the mess that went before. This is cleaning up the problem. It's a bit like complaining that cleaning up asbestos is expensive; yes it is but wishing that the asbestos wasn't there won't solve your problem.

pqrdef

ILW wrote: »

Just because they joined the Euro they seemed to expect to have a similar financial status to the average German.

Imagine a U.S. President telling the people of Arkansas they're second-class Americans.

ILW

pqrdef wrote: »

Imagine a U.S. President telling the people of Arkansas they're second-class Americans.

The average Arkansian(?) does not expect the same financial status as the average New Yorker.

Greeks and similar have to realise that without a lot of work and sacrifice there will be rich and poor Europeans.
Unless the plan is for an enormous communist state that is.

Mrs_Bones

pqrdef wrote: »

Extreme situations produce extreme consequences. What will it take for Europe to notice what it's done to Greece?

The German idea of how to manage the euro has been a disaster for half of Europe. There can't not be political consequences. People aren't just going to shrug and say, ok, let's be dirt-poor while the Germans get rich, they're so much more deserving than us.

Yesterday, Greek television described the ‘stunned silence’ with which IMF officials received the election results. A reporter said: ‘Our sources at the fund are telling us they had no idea of the extent of the anger and anti-austerity feeling in Greece. They are amazed.’

I think the above quote demonstrates part of the problem, the EU and to some extent the IMF simply doesn't know what it's done to Greece. The EU and Germany is so wrapped up in trying to safe the Euro at all costs, including riding rough shod over national democracies that it's come as a something of a shock to find they haven't taken people along with them and now there is open rebellion.

ILW

Mrs_Bones wrote: »

I think the above quote demonstrates part of the problem, the EU and to some extent the IMF simply doesn't know what it's done to Greece. The EU and Germany is so wrapped up in trying to safe the Euro at all costs, including riding rough shod over national democracies that it's come as a something of a shock to find they haven't taken people along with them.

The Greeks did it to themselves, they just have trouble accepting it. Like many who get themselves into debt.

Mrs_Bones

ILW wrote: »

The Greeks did it to themselves, they just have trouble accepting it. Like many who get themselves into debt.

The Greek government was complicit yes, but they didn't get where they are with out the EU also being complicit. They would never have been able to get in this pickle if they'd not joined the Euro but the EU bent all the rules to let them in. The EU was in such a rush to enlarge upon it's dream of 'Europe unity' that they broke all their own fiscal rules, not just once either.

ILW

Mrs_Bones wrote: »

The Greek government was complicit yes, but they didn't get where they are with out the EU also being complicit. They would never have been able to get in this pickle if they'd not joined the Euro but the EU bent all the rules to let them in. The EU was in such a rush to enlarge upon it's dream of 'Europe unity' that they broke all their own fiscal rules, not just once either.

The EU may have been complicit, but in the end it was the Greek people (through elected governments) who decided to go on for years spending way more money than they were earning (or collecting). Nobody forced them, they just enjoyed the ride and are now complaining about having to pay the fare.