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article imageOp-Ed: Euromess Round 2 as austerity and ignorance kill economies

By Paul Wallis     Jul 11, 2013 in World
Sydney - As expected, the hyper-austerity killed the economies it was supposed to save. Instead of one Treaty of Versailles, there are now several. The question now is why the charade is continuing and why anyone believes in it at all.
Sydney Morning Herald/Daily Telegraph UK
A leaked report from the European Commission confirms that Greece will miss its austerity targets yet again by a wide margin. It alleges that Greece lacks the “willingness and capacity” to collect taxes. In fact, Athens is missing targets because the economy is still in freefall and that is because of austerity overkill. The Greek think-tank IOBE expects GDP to fall 5 per cent this year. It has told journalists privately that the final figure may be -7 per cent.
Collect taxes from what? From whom? A comatose economy? People selling goods to buy food? How? As an economic exercise, the Greek bailout was a recipe book for how to guarantee economic failure. Unemployment is huge. Net GDP is contracting and a cascade effect is quite obvious.
Greece still had to go to the IMF as the “bailout” turned into a bail-up. Spain, Portugal, and Italy are in serious trouble, again. Other markets are being affected, notably China, which has the misfortune to have Europe as its largest customer.
The most noticeable characteristic of the response is insularity on a scale that is truly indescribable. Riots come and go and the Euroclowns ignore any sort of criticism. Economists have been saying for over a year that the austerity measures were sure to fail. Everything which was predicted, in effect, has happened.
One of the more amusing, if sickening, sidelights to the current imbroglio is that negative political comments are now being blamed for some of the mess.
The ECB (European Central Bank) study focused on public pronouncements on fiscal policy and state finances by officials. It found in the short term that certain types of commentary had a quantifiable effect on the spread between the bond yields of Greece, Ireland and Portugal over German bunds. The impact was biggest for Greece. Policy makers at the regional level communicated more positively on average by using words such as “implement.” For those at the national level, the most-used word was “fail.”
…“Unconstructive and inconsistent communications can have real and tangible effects on countries, their financing conditions and by extension on their populations, as well as on the cohesion of the euro area,” they said.
They’ve got the time and money to do a study like this, but not see or fix the obvious problems in the Eurozone?
There is something truly hilarious in the idea of a collection of solemn, dignified financiers gathered together proving beyond any possible doubt that they couldn’t run a dunghill. They’re ignoring the economic media, riots, and other governments as well as their own people. Must be some little coven they have there.
The other side of this merry little excursion into barking mad insanity is that the rest of the global economy is quite likely to catch this disease:
If Europe reaches a threshold of economic atrophy, China will be affected through the trade market and the US could easily that find its dodgy loans to various EU countries and its bona fide ones are now worthless. The capital crash of both these effects could be spectacular.
There are currently $633 trillion of bonds on the global market, of which Europe has quite a lot. If those bonds fall to bits, a lot of capital is instantly destroyed and won’t be coming back. Capital will be erased from the bond market, adding more losses globally.
The UK, which is glued to Europe, is very vulnerable to a major Euro crash. This could be a hit from which its financial sector may find it difficult to recover. That would add another Euro beggar to the list. Perhaps two. France is in similar condition
Repudiating bailouts could be a godsend for ultra-nationalists. Europe could pull itself apart in a populist revolt. These bailouts are as bad as the Treaty of Versailles and as unlikely to succeed.
A historical lesson is apparently trying to repeat itself. Most people don’t know that in the war of 1870, Prussia imposed a payment on France. In 1918, the French returned the favour, setting the stage for the rise of Hitler. In 1945, the US instituted the Marshall Plan for Europe, a good working model for wrecked countries.
Europe obviously hasn’t learned a damn thing since 1870. Debt is no way to manage a mass of economies. It never has been. The price of ignorance is likely to be very high for the world.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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