To answer the OP’s question, the simple reason that austerity measures are failing is because they only deflate the economy further. When you’re in a recession, what you need is growth.
To the poster who said that Ireland only implemented its austerity measures when it was already on the verge of collapse, that’s incorrect. We’ve had three austerity budgets in a row now. They’ve only made things worse.
I think Latvia was the first EU-nation being hit by the financial crisis, and being compelled to put in austerity measures. And Latvia was hit harder and their austerity was more austere than anywhere else. The Irish austerity is a mild summer breeze by comparison to slashing the number of public employees by up to a third and the salaries of the remaining staff by 20% or more and their pensions by 70% - which was just a few of the things Latvia did in 2009 to balance their budgets.
What I hear is that the Latvian economy already rebounded. While it was projected in 2009 that the recession would continue throughout 2010, it already ended in 2nd quarter, growth is coming up (3-4% in 2010), unemployment (while still very high) coming down (>20% -> 10-13%), deficit is shrinking (it is on track to get under 3% in 2012), exports are growing, trade balance is in a big plus. It is still too early to say, but so far it seems to be working out. The Latvian corporate tax is as low as the Irish btw. And the conservative government that put in the austerity was just re-elected.
Well if you can figure out a way to grow your economy without borrowing – since that would soon be impossible - and without expecting Germany and other sound economies to bail you out, then by all means go ahead and do that. The problem is that there is no one who would want to lend you any money at a reasonable interest rate.
The “Obama apologists” are aware that the US isn’t bankrupt. Unlike you, apparently.
The fact that you’ve had them does not necessarily mean they’ve made things worse, and AIUI you were running a structural deficit for some time before that, yes?
Exactly. Keynesian theory says you start cutting AFTER growth begins. Preferably after growth begins to reach the working class.
Theoretically speaking that would be a fine theory. In actuality how would you propose the Irish or Greeks should continue to run a deficit when there is no one that would lend them a dime?
Latvia, like Iceland, is a microstate. Its total population is comfortably under 2.5 million. That’s less than the metropolitan population of a major city. You can’t learn much from an economy that size that applies to “full size” ones.
Denmark is a microstate too then. So are most of the nations in the EU. Ireland is just over 6 million. Less than any number of larger cities I can mention from memory. The population of Greece is a little bigger. About the same as Moscow. I think Latvia serves as a stellar example on how an economy can be brought successfully through massive economic problems.
They can’t? Europe will ultimately lend to Ireland because if Ireland goes down, the’re gonna take Europe with them.
If they can’t run a deficit then they might as well party like it’s 1999, or default… or as I said, do what Iceland did. As it has been explained they’re pretty much also a microstate. They can do it.
If your plan is to blackmail the Euro-zone then I think you’d find little sympathy and less success. Already the aid packages to Greece and Ireland were only passed through in places like Germany and Austria when people put the thumbscrews on Merkel. If the Irish had stared out by pissing off the Germans, I would have counted the chances of getting aid to be rather slim. Rather they were kicked out of the Euro.
A party like 1999 would be short-lived and end in default, which would lead to much worse austerity measures than the ones proposed so far. The Icelandic austerity measures are also pretty harsh. I believe something like 10% of the population has emigrated since they tanked. A very large number of common Icelander are very hard hit because they have house or car loans in Swizz Franks or Euros or other foreign currencies, and the Icelandic Kroner has tanked big time. And they haven’t really punished anyone responsible to any large extend. The politicians were voted out but still free. The major business leaders that generated the crash are also free, most have left the country. It is assumed they stashed away large sums before that.
:dubious:
You seem to be coming at this with the notion that this is all Ireland’s fault and they’re holding the Eurozone hostage with their outrageous bailout demands. There is blood ALL OVER Germany’s hands in this. Germany’s banks made all manner of lousy investments in Europe, and they’ll be ones facing collapse if Ireland (and Greece and Portugal and Italy and Spain) tells them to get bent.
:dubious:
Personally I believe all incompetently run banks and nations should be left to go bankrupt. However I was addressing Jacquelope’s proposal that Ireland should engage in some kind of game of chicken with Germany or the rest of the Euro-zone. Which I think would result in a spectacular failure for Ireland. And if Germany wanted to save German banks from the meltdown in Ireland, a less expensive method would have been to recapitalise the banks directly rather than indirectly by propping up Ireland. Also I was of the understanding that Jacquelope had some general point that went beyond small economies like Greece and Ireland. If for instance Spain engaged in large Keynesian deficit spending now in an attempt to boost its economy, then it would be all over. It would be too big for anyone to bail out.
That’s precisely what all of Europe should be doing: negotiating write-downs of all this debt and reorganizing the banks.
It’s crazy that the Euro-zone should collapse because the member nations all owe each other a bunch of money that they can’t pay back. It’s the same problem we’ve had with the banks in the US. They booked their phony paper profits, and they’re dragging things out and desperately hoping to realize those “profits” rather than conceding that they’re mostly bullshit and they did nothing to earn them. So instead of Germany, the UK, and France going to its people and saying “Look, the banks screwed up, we’re going to have to spend a bunch of your money nationalizing and reorganizing them,” they’re instead kicking the can down the road and hoping the PIIGS, by some miracle, manage to make good on all this debt by slashing spending and cratering their economies.
But no. They’d rather cram this shit sandwich down Ireland’s throat and hope they don’t spit it back out.
Actually, I might be - but I dont’ hold a strong opinion on it because I don’t see clear proof. I’m saying that your actual, specific words were prescriptive, not analytical. If you don’t like that, be clearer in the future.
But it’s also didn’t really aim at the OP, who does not appear to really udnerstand GDP except in the vaguest fashion, and can’t clearly comprehend the concept of investment.
(I tried to post this twice before and got booted off by server slowdown, so sorry it took so long.)
The problem with your idea is that it would likely bankrupt several whole nations and destroy the last gasp of the EU, which they are unprepared to admit at this point (though it may occur anyway). These states would face government bankruptcy and collapse, the banking system might well go under anyway, and then we’d have a much worse depression. As with a lot of things, your proposal is simple, logical, straightforward, sensible, and horribly wrong.
I agree with you on the latter point, however: it’s a lot easier to try to shove around Ireland than fix the basic issue. They are hoping they can stave things off until the economy picks up and eases a lot of the burden. I don’t see that happening.
Avoiding bankrupcy is the reason for debt writedowns. And debt will have to be written down otherwise national insolvencies will be inevitable. What the writedowns will mean is that creditors will have to share in the losses with taxpayers who are currently bailing the creditors out at a hundred cents on the euro/dollar/whatever.
To further my point about conservative economists, apparently they’re back in vogue according to this article.
http://www.nytimes.com/2010/12/01/business/economy/01economists.html?_r=1&ref=business
It makes a lot of sense I suppose, after all who better to turn to to get out of the current mess than the guys who provided the intellectual underpinning for the policies that got us there in the first place.
The article includes this breathtaking ststement :
“Even if the next two years do not result in legislative compromises on taxes or entitlement reform or other issues, we will see a vigorous and open debate in Congress about economic policy — a huge change from the Obama administration’s closed-minded and self-righteous approach,”
Yes, because guys demanding we go back to doing what blew up the economy in the first place and who put the blame for the meltdown on everybody but themselves and won’t accept that there’s anything wrong with their free market ideology despite the events of the past few years aren’t in the least close-minded or self-righteous.
The article also gives us a list of conservative economists who are the new advisors to the GOP House Leader. The first name is Allan Metzler, a guy who has been wrong about everything for years (there’s no bubble etc.) and even after the meltdown continued to get everything wrong, predicting hyperinflation amongst other things. And then there’s Kevin Hassett, who wrote Dow 36000 a few years ago and was rewarded for his prescience by being made a Senior Fuckwit at the American Enterprise Institute. He’s economic policy director there believe it or not.
It’s hard to know what to say about this really.
I disagree that deficit spending can be called conservative. True conservative economics would balance the budget also if it required raising taxes.
4.4 million in the Republic of Ireland, over 6 million on the island in total.
Yes, but true conservative economics is a figment of the imagination, at least in the US.
What you’re missing is the massive credit crunch that would follow. That would surely baknrupt most of these coutnries, as creditors would simply refuse to lend and demand repayment on outstanding debts.
The short version is this: It Would Be Bad. http://www.youtube.com/watch?v=jyaLZHiJJnE