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Time to Scrap the Euro.

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Neotenic
907809.  Tue May 08, 2012 5:37 am Reply with quote

Quote:
you can boost growth through spending.



Of course you can - which is, in no small part, how we ended up in this mess in the first place.

The thing I have found most thoroughly bizarre is that - no more than ever - it is the parties of the left that are most fervently clinging to the mantra of 'a return to growth at any cost', as if the growth of an economy is the most important metric.

Increasingly, I do not believe that it is.

Growth fuelled by increasing debt, in particular, is false growth. It is a sham that can only be sustained by continually stoking the fire - and it the fact that, in 2007 and 2008, governments started to run out of kindling that transformed the issues from a 'potential timebomb' into a clear and present issue.

In effect, trying to spend their way out of the danger zone is exactly what the government in Greece was trying to do - the the austerity package imposed upon it by the IMF is the cost of the failure of that strategy. It does blow my mind that there are sensible people that still think this strategy can work - just as it would be equally mind-blowing to listen to a hard-right economist that remained absolutely convinced that the stock market value of any given stock is absolutely rational, despite everything that has happened.

 
PDR
907821.  Tue May 08, 2012 6:42 am Reply with quote

The greeks are still scared of the german bogieman. As in the joke:

Ms Merkel visits Greece to discuss the way ahead. At the airport passport desk she's asked the usual questions:

"Is your visit business or pleasure?"

- "Business"

"Occupation?"

- "No, not this time. Well, not yet, anyway..."

PDR

 
Sadurian Mike
907822.  Tue May 08, 2012 6:44 am Reply with quote

World-wide Recession?

Extremist governments coming to the fore?

Must be time for another war. At least we haven't let our military decay to the point of ineffectiveness this time....

 
CB27
907834.  Tue May 08, 2012 7:29 am Reply with quote

Neotenic wrote:
Quote:
you can boost growth through spending.


Of course you can - which is, in no small part, how we ended up in this mess in the first place.

Actually, it wasn't Government borrowing that ended us in the mess, a lot of the debt we see today was from bail outs where banks not only over reached themselves, but they lent money to people they knew couldn't pay them back. The other side of the coin was institutions selling bad financial packages on purpose.

Simply growing an economy is not that hard, you can see several countries doing it even now, but that growth is false if people are not benefitting, and we see this in the BRICS and other nations. Here in the UK we have seen our economy stagnate, but in reality, services are being cut, jobs are being lost, and people are starting to suffer (thankfully not as bad as other countries because we still have a decent welfare system compared to other countries). We cannot restore our services, reduce unemployment or reduce our welfare spending if we don't do something to increase production.

To say that debt is a false economy is also ignoring how economics work, debt is actually a healthy part of an economy if managed correctly, and if confidence is strong.

As for Greece, I don't think the blame can just be laid at Government overspending, there are a number of factors that led to their crisis. These include the fact that their finances were not open and correct (they should not have been allowed into the Euroat the time they entered), wages had been increasing too fast for a few years, raising GDP expectations way beyond what they were ever going to be. Add to that a collapse in confidence, which raise the cost of debt to incredible levels. The Government overspending was an element, but it was at reckless levels considering the other problems adding to their crisis, before the crisis started, their reason for high debt is nothing like that of the UK or the US, which is why they are suffering in a completely different way.

 
Efros
907844.  Tue May 08, 2012 8:20 am Reply with quote

It will be interesting to see how the Euro and its adherents react to the gummint changes in Greece and France over the last few days. Certainly could be a fun filled few months.

 
Neotenic
907845.  Tue May 08, 2012 8:21 am Reply with quote

Quote:
To say that debt is a false economy is also ignoring how economics work, debt is actually a healthy part of an economy if managed correctly, and if confidence is strong.



Of course - it's just those are two very big 'if's.

It's pretty clear that the debt was not being managed correctly, with varying degrees of correctness, from London and Berlin through to Dublin and Athens.

In a domestic setting, an effective use of debt would be buying furniture, or building an extension. An irresponsible use of debt would be relying on it to buy the week's shopping or to keep the lights on. And, increasingly in this country and even more so in others, we we using the national debts more for the latter than the former.

And I think we'll be waiting a very long time before confidence returns to the point where a large reliance on debt is not something that gives potential investors a massive attack of the heebie-jeebies.

 
CB27
907847.  Tue May 08, 2012 8:33 am Reply with quote

Personally I think Government debt was managed in London, and while there was a bit of wild spending in the last few weeks of the Labour Government, it was a drop in the ocean in terms of the debt and not what contributed to the problem we all faced. I think that bit of spending in the end was to be able to say "we did this and that, and the new Government didn't", but it was soon forgotten because the mantra changed from building the economy to reducing debt.

Other leading economies also saw a large build up of debt through bailouts, but Greece, Iceland, Italy, Spain and others saw their debt levels rising because of a build up of debt and liabilities before the crash which was misused and did not contribute to the country or the economy and a subsequent drop in confidence which saw the cost of debt rise.

 
Neotenic
907851.  Tue May 08, 2012 8:39 am Reply with quote

Quote:
Actually, it wasn't Government borrowing that ended us in the mess, a lot of the debt we see today was from bail outs where banks not only over reached themselves, but they lent money to people they knew couldn't pay them back.


I'm amazed that this version of the story still gets passed around - it's obviously a neat and tidy one, because it entirely shifts blame out of Westminster and into The City - but I really don't think it holds water.

Sure, the crisis resulted in the public purse taking a big, fat hit and the result was that debt was ratcheted up with alarming speed - but the reason why this posed such a problem is because that purse was already straining at the seams in terms of how much debt it was already holding.

The figures bandied around about the 'cost' of the bailout often reached stratospheric levels because of the inclusion of guarantees that never needed to be exercised. So the actual ongoing book cost of the bailout is actually relatively small - and can largely be expressed as the cost of the investments now being managed by UKFI.

That is, £45 billion worth of RBS shares, and £17 billion worth of LBG share (plus B&B and Northern Rock - but those investments are structured in a different way).

Between 2001 and 2005, around £100 billion was added to the public debts - during what is now regarded as the boomiest of boom times. Indeed, as was thought at the time, boomy enough to never have to worry about bust again.

It is precisely this mindset - that 'the good times' mean that we can take on increasing levels of debt, complete with a fat-headed belief that the benefits of booms could be reaped and the risks of busts could be spirited away, that contributed to the extent of the crisis in far larger proportions than any wanker with a pair of red braces bellowing 'sell' into three telephones at once.

Of course, the bankers can take the blame for the banking crisis - but that crisis was merely the catalyst for the much bigger crisis in public spending that has been the actual problem, certainly since 2009.

 
Neotenic
907852.  Tue May 08, 2012 8:40 am Reply with quote

Quote:
while there was a bit of wild spending in the last few weeks of the Labour Government


 
suze
907863.  Tue May 08, 2012 10:54 am Reply with quote

Neotenic wrote:
So events in Greece are uncomfortable, but not completely unpredictable.


Right now, I think events in Greece are completely unpredictable.

What we have is an election in which no party won a majority. The outgoing government was a coalition of left and right - the major partner was PASOK (much like the British Labour Party), and its junior partner was New Democracy (a party of the centre right not unlike the British Conservatives). That coalition approved the austerity measures which are now in place; all the other parties opposed them.

After Sunday's election, the largest single party is New Democracy, but its leader announced yesterday that he would not be able to form a government.

The second largest party is now the Radical Left (hard left), and its leader Aléxis Tsípras is currently trying to form a government. That would necessarily have to be a coalition, and he's talking to PASOK, the Democratic Left (classical liberals), and the Communists. Even if - and it's a big "if" - Mr Tsípras gets all those leftist parties on board, that coalition would only control 138 of the 300 seats.

New Democracy has 108 seats, the Independent Greek Party (a group of New Democracy politicians who left the party because they could not accept the austerity measures) has 33, and Golden Rain - that charming fascist party - has 21.

Mr Tsípras has three days to form a government, and it's looking increasingly likely that he's going to say that it can't be done. He'd need the Independent Greek Party on board, and a party which is essentially conservative is hardly likely to join a coalition led by the hard left.

If he fails, PASOK - as third largest party - will also be invited to try and form a government, but is likely to reject the task out of hand. And if that happens, there'll be another election.

Would those who voted for the hard left and the far right on Sunday return to PASOK and New Democracy, and thus enable one of those two parties to form a government? Or would the Greeks reject mainstream politics even more strongly than they already have, and leave the country with an extremist government of one flavour or ther other?

 
Neotenic
907880.  Tue May 08, 2012 12:55 pm Reply with quote

Quote:
Right now, I think events in Greece are completely unpredictable.


Sure - but I was referring there to the general lurch towards extremist parties, and away from those that ushered in the external support, rather than the precise post-election calculus from the results and inter-party negotiations.

And we also see, across the media, the habitual referral to nationalist parties as being 'far right', when its often hard to see their policies as being an extrapolation from the near-right.

More often than not, it seems to me that there's often little difference between the parties of the far left and the far right, other than the tacit or explicit racism of the latter. So, one has to wonder, are the 'far right' thus named because those on the left find their nationalistic ideas so repellent that they try to maintain as much distance as possible from them?

Indeed, it's quite hard to determine what Golden Dawn's policies actually are, past 'Greece for the Greek' - although not actually speaking Greek may put me at a material disadvantage on that point.

And, of course, if GD does begin to build upon this foothold (normally, I would think this unlikely, and that there is generally a baseline of around 5% of any country that is stupid enough to vote for a nationalist party like this - but anything appears possible at the moment) what would that mean for the Greek tourist industry - 'Greece for the Greek - except for when people want to come for ten days of sun and ouzo?'

 
barbados
907883.  Tue May 08, 2012 1:13 pm Reply with quote

CB27 wrote:

Actually, it wasn't Government borrowing that ended us in the mess, a lot of the debt we see today was from bail outs where banks not only over reached themselves, but they lent money to people they knew couldn't pay them back. The other side of the coin was institutions selling bad financial packages on purpose.



I've done a bit of a bob here but. Excuse me?

The financial mess we are in is down to the 7bn that the government used to bail out the bank? are you sure that the 30bn in debt interest that was being paid to service the existing debt didn't have anything to do with it then?

 
CB27
907885.  Tue May 08, 2012 1:17 pm Reply with quote

Neo, I think I worded badly one of my posts, because I wrote "a lot of the debt we see today" which I know isn't true, and wasn't what I meant, so it was an easy one to jump at. Fair point.

What I was trying to say was that a lot of the debt that increased our debt levels suddenly at a rate which set alarms ringing was from the bailouts and the fallout.

I like the rose tinted glasses pic, but I can't help thinking it's a bit of a pot and kettle situation considering the immediate post prior to it you wrote "Between 2001 and 2005, around £100 billion was added to the public debts". Terrific bit of selective information there.

The public debt in 1997 was £348bn (41.9% of GDP), and by 2001 this dropped to £313bn (30.6% of GDP), hardly the actions of a Government increasing debt. The next few years
were affected by the wars in Afghanistand and Iraq. The debt in 2005 was £424bn (33.8% of GDP). If it weren't for the wars, we might have see debt reduced.

By the time we get to 2010, after the bailouts and the after effects, and the debt was now £760bn (52.2% of GDP). Since the austerity measures have started we now see a debt of £977bn (62.8% of GDP).

It's easy to use selective data to back up claims that a previous Government was letting debt getting away, but when you look at all the data it shows this is not the case. I can do the same to the previous Tory regime, when debt suddenly rose between 1991 and 1997, but it would be wrong of me to ignore that debt was reduced in previous years and that we had the Gulf war and various other events in the early 90s.

 
CB27
907887.  Tue May 08, 2012 1:27 pm Reply with quote

barbados wrote:
The financial mess we are in is down to the 7bn that the government used to bail out the bank? are you sure that the 30bn in debt interest that was being paid to service the existing debt didn't have anything to do with it then?

Can you please provide the information that the banking bailout cost us only £7bn?

Neo mentions some £62bn, but when you add up the various loands, I think the accepted figure is usually around £120bn+. Of course, this is just the bailout of banks, but doesn't count the costs to the economy from credit being denied for many companies, it all adds up.

 
CB27
907890.  Tue May 08, 2012 1:31 pm Reply with quote

Anyway, back to Greece, I see where suze is coming from in that it seems a little worrying the way Greek politics is balanced at the moment, and the problem is compounded in that parties are so opposed to each other's solutions that a minority Government in not an option.

A bit of a headache.

 

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