Ireland has a useful backstop though, when it comes to debt, although not entirely altruistic. The T&Cs of the UK loan were very generous.
Ireland did take on the private debt of its banks, instead of just stiffing the private creditors. And I’m not just talking about covering deposits, which pretty much every country does. The Irish taxpayer has been covering private debt run up by its banks.
Are you saying a surplus can never mean government overspending?
Surpluses and deficits are important, but they are not everything. What the UK, Greece and Spain(amongst others) had in common was that all their economic indicators were artificially stimulated. The Spanish government were having a surplus of, say, 1 Euro for every 100 Euros it took in tax. It spent only 99 Euros for every 100 it recieved. At first glance this is fiscally prudent. However, they were only able to get the 100 Euros in the first place due to an unfeasible commodity bubble. It is the government’s reliance on the bubble that is irresponsible of them. Thats the bizarro world I live in. I believe that that governments ought to have recognised the bubble. Instead these governments ran with the bubble and greedily took every penny and cent they could. Spending it on a mixture of genuine State need and the buying off of their electorates.
The UK has nothing in common with Greece and Spain, economically. checks banknotes in pocket and gilt yields and terms Yup.
If you want to make the case that Spain was overspending while it was running a surplus, then produce some actual figures and explain how Spain was overspending. Explain to us this “criteria” of yours that determines when a country is overspending, and pull the data from Eurostat (it’s all readily available) and explain to us how Spain meets your criteria.
We actually have figures about Spain’s spending. Why are you giving us these analogies about 99 Euros and 100 Euros?
Well, I agree there was a bubble, but everyone and their mother kept saying there was no bubble during the run up to the crash. The banks were saying it, the Fed was saying it, the ECB was saying it. Because if they had thought there was a bubble, they would have started jacking up interest rates to tamp it.
But Spain did exactly what you are supposed to do during good times. They ran surpluses and paid down their debt. You are just making stuff up, and you have no data to back it up. The comparisons between Spain and Greece put out in this thread are utter nonsense.
Produce actual figures? Well that’s difficult to produce actual figures. Why? Because the figures of the period are a complete clusterf*ck. Anyway here goes.
The Spanish GDP figures fell by around 10% in 2010. The 2010 figures give a relatively accurate accounting record of true Spanish GDP. It fell again roughly 3-4% in 2011. All in all falling from 1593 billion US dollars in 2009 to 1384 billion dollars in 2011. It is the latter figures that the Spanish government needed to be basing its finances on. Of course it would take an economist of inhuman levels of genius to accurately account these numbers. However, with hindsight a prudent State ought to have at least based its finances closer to these lower GDP levels than the red hot bubble induced figures. I suspect the controversial word in my preceding sentence is the word “hindsight”. As the saying goes, hindsight is a wonderful thing. However, I really dont think it unreasonable of me to hope a fiscally competent government would behave with prudence. Instead, the Spanish government did what too many governments did. It tried to spend a lot, tax as little as it could get away with, and to hope the good times would roll on and on and on.
Uh, okay. So, figures that are widely available are a clusterfuck. Why? Because you say so? You aren’t doing economics, you’re just making stuff up. If we can just dismiss data, then why even have a debate at all? We can just wave around anything we want to.
Lol. We were talking about he behavior of the PIIGS countries before the crash and you are producing figures from after the crash. I think at this point we can dismiss the notion that all the PIIGS countries were being fiscally irresponsible before the crash as bunk. Greece was, but lumping their behavior in with the other PIIGS countries is nonsense.
The availability of the figures are not the problem, the problem is their accuracy. Accurately working out the true value of an economy is difficult at the best of times; it’s virtually impossible during a huge commodity bubble.
I agree that we cant lump all the PIIG countries together. Some acted much worse than others, but all of them acted pretty poorly imo. Acting poorly pre crisis was not limited to PIIG countries. Virtually every Western government behaved quite poorly fiscally.
Riiight. You’ve decided (based on what, who knows) that the figures are inaccurate. You have some secret methodology that determines the “true value of the economy,” whatever that is, but it’s not based on figures or data. Are you actually serious with this? This is GQ, not Fuzzy_wuzzy makes up whatever he wants to.
You’re not even using your terms correctly. When we’re talking about fiscal policy, we are primarily talking about government spending. You keep trying to throw a discussion about asset bubbles into a discussion about fiscal policy. Asset bubbles may be a regulatory failure or a monetary policy failure, but they aren’t an issue of fiscal policy. Especially in this case, because the asset bubble was driven by private spending and leverage and not government spending.
This thing about the PIIGS countries recklessly spending in the run-up to the crash is a just-so story that has no basis in reality, except for Greece and perhaps Portugal (and if you want, you can throw in Italy because of its profligate ways in prior decades). You can certainly blame Spain for not regulating its banks properly (but nobody was doing that), or the ECB for not clamping down on the asset bubble. But that is not a discussion of fiscal policy.
Spain was not behaving fiscally irresponsibly prior to the crash. Period.
The ECB isn’t a real central bank in the sense that the Bank of England or Federal Reserve is. In particular, measures like QE that the BoE and FR have used extensively to drag their respective economies out of the holes they found themselves in post-2007 are controversial if not outright forbidden for the ECB to engage in, with the ever persistent threat of the German Constitutional Court et al. finding the ECB’s policies illegal under the various treaties (imagine how FR policy and behaviour would be curtailed if every one of the 50 American states could offer their two penneth worth whenever they wanted).
Further, there’s a strong narrative in Northern Europe that Southern Europeans are lazy and workshy, and that Southern Europe is one amorphous block of indistinguishable countries and economies. The nuance that Italy is a manufacturing economy specialising in high-end goods such as Ferraris and top of the range industrial machinery with different needs to Greece or Portugal seems to be lost on a lot of Northern Europeans. Now, the same rhetoric has been repeated so many times by politicians in the North that they’re now backed into a corner and cannot change course and relax austerity in the south without causing a shitstorm in their own countries.
He might be right or wrong, but what he says isn’t nonsentical. He’s simply saying that the state income before 2010 was inflated by an artificial prosperity brought in by the building bubble, as proven by the GDP collapse in 2010-2011 (the figures he gave) and that a prudent state would have taken the artificiality of the situation into account and would have reduced its expenses more than it did.
When you talk about surplus, are you talking about the central government only, or taking all levels into account? If the top level has surplus but 15 of the 17 elements right underneath have deficits, the situation is very different than if all 18 have surpluses.
And to those who say the issue was “government overspending”: no, not only. There was also a big issue of general overspending in the wrong things - by this I refer mostly to people getting mortgages for 120% the value of the house and to people going into the mindset of “buy three houses to sell two”. Sell two to whom, if everybody is in buy-to-sell mode?
Thank you. This is a better summary of my argument than I managed to produce in about four posts.
Also, im not saying the Spanish government primarily caused the crisis, or the bubble, more that it’s behaviour before the crash did limit it’s ability to deal with the post crisis aftermath.
How much of a cut in spending and/or increase in taxes do you think would have been required to meet their post-crash needs? Remember this was the worst recession since 1929. Is your problem with them that they could not predict the future exactly?
The problem is that the PIIGS overspent - perhaps the Spanish government did not really, but apparently it took on the financial obligations of failed banks and provinces(?) so in the end, it owed more money than it could comfortably pay back.
The theory of Quantitative Easing (QE) is to “create” money to spend on projects such as infrastructure and improvements that create jobs for the working class unemployed, thus also creating purchasing power and greasing the wheels of general commerce.
The problem is, if the current government is so in debt that it cannot maintain basic services, if it is sucking the life out of the economy with higher taxes, or defaulting on its current debt - what is the point of pouring new money into that hole? If the economy is not restructured so that in future the government does not have to spend most of its income on futile debt repayment, then more money will have no benefit. Plus, if corruption and misspending are chronic problems, then even in an ideal situation a lot of that money would be wasted. Money spent helping the problem governments did not / would not create economic activity in the countryside - it would simply help some stupid bank managers get their banks on a solid footing. The banks would not lend the money for mortgages and car loans, but would hoard the cash because they were already overextended.
The Germans were happy to help Greece restructure debt because the banks that would suffer on a default were also German. But they were not willing to pay the excessive pensions of “lazy” civil servants. They were probably equally reluctant to finance “jobs for Greeks” when the German economy was not doing too well either.
I have absolutely no idea how much they needed to cut. These things are not a precise science. I only know/believe that they needed to act more responsibly. Governments throughout the Western world were getting drunk off their record GDP growth and record tax receipts. Governments had their noses in the financial trough just as much as your average international bank. All of it was unsustainable.
Do I expect Governments to predict the future? Yes, to an extent, or, at least I expect them to be fairly risk averse. It’s not rocket science to know that financial crises occur regularly. The latest one may be the deepest recession since 1929 but the natural state of capitalism is one of boom and bust. This fact should be well known to just about everyone. Below is a link to the history of financial crises(note there is lots of them). It shouldn’t have come as a surprise that another one occured. Predicting when the crisis hit was the impossible part, I would not expect anyone to accurately time such an event, but I would expect a competent government to know that these crises do occur regularly and to behave accordingly.
And yet, many countries which ran much higher deficits aren’t having the problems that Spain is having. People who are interested in figuring out what is going on ask why Spain could run surpluses and still have problems, while other countries could run deficits and not have nearly the amount of problems. But if you start asking that question, then the just-so story about profligate Southern Europeans causing their own problems starts to fall apart. So, people make up nonsense about Spain spending too much money.
And it is nonsense, because I’ve asked him to lay out some criteria about how much spending is too much spending, and he can’t do it. Because he doesn’t know anything about the topic.
Fuzzy_wuzzy clearly doesn’t understand what he’s talking about. He’s just making stuff up, and when I ask him where he gets his info from, he makes that up as well. It’s nonsense layered on nonsense.
Can you give it a rest already? You didn’t even know that Spain was running surpluses prior to the crash. Spare us your “insight.” You can’t even look up readily available data, yet you think you “know” how the PIIGS “overspent.” Seriously, this is like dealing with creationists.
Many of these economies that were running deficits have a far healthier and more varied economy than Spain’s. Many have half way decent manufacturing and export sectors. Again, this is an example of the Spanish govt/economy being overly reliant upon property and commodity prices in the run up to the crash. Spain’s current account deficit was atrocious during the run up to the crises. This is one of the reasons Spain suffered so badly post crisis. This was not exactly an surprising achilles heel of the Spanish economy. It should have been a flashing red warning light to all involved. If an economy places all its taxable eggs in one taxable basket you are asking for trouble if the goose stops laying its golden taxable eggs.
Only recently has this Spanish current account deficit been turned around.
http://www.tradingeconomics.com/spain/current-account
A comparison with France:
How do you define responsibly? Many people would define a country running a surplus as behaving responsibly. To get a bigger surplus you’d need to either raise taxes, which might slow down the economy, or cut spending, which is going to hurt the constituents of the government and probably be politically impossible. Cutting someone’s job or social welfare payment during a crash at least seems justifiable. Cutting to get a bigger surplus just in case an unprecedented crash happens, not so much. If they were that smart, they should have attacked the root cause of the problem through regulation, as others have mentioned.
The accepted action to prepare for a crisis is to run a surplus during the good times, which they did. Given the tradeoffs they had to make anticipating a disaster of that level is unreasonable to expect. I’ll just point out that the US, running a deficit during the good times, was less responsible. However, we could print money which Spain could not do.
Their tax revenues and thus spending increased due to the bubble. Which they didn’t try to control. just like us. To answer my own question, their rescue package was 100 billion Euros, which I don’t think was enough.
I’m having a hard time finding spending data but I think here is the best.. If I’m reading it correctly, spending was about 56,000 million Euros in 2009. Kind of hard to generate the right amount of bailout from that.
So, yes they did overspend, but no amount of spending cuts could have prepared them for the crisis. That’s common. In California, during the worst of the crisis, the state government could have fired every worker and still run a debt.