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Why austerity in the eurozone is failing,condemning Ireland and the Eurozone to permanent economic stagnation


patslatt

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Why austerity in the eurozone is failing,condemning Ireland and the Eurozone to permanent economic stagnation

As discussed in several recent articles in the Daily Telegraph by economist Roger Bootle and financial journalist Ambrose Evans-Pritchard, Eurozone Eurocrats led by Germany continue to argue-against the odds-that austerity or "grinding deflation" can balance budgets.This replaces the economic role in southern Europe of traditional currency devaluations and bouts of inflation that at least for a time reduced wage and other business costs,making imports more expensive and restoring international competitiveness. The weaknesses in this argument are increasingly apparent,going by 1930s era youth unemployment and painfully slow progress on reducing government deficits. Reasons austerity isn't delivering include:
-Instead of wages falling,unemployment is rising,driving up social welfare spending
-The degree of austerity needed to force wages down is prevented by labour market rigidities and is politically impossible anyway
-Because government spending has been the main driver of the EU's economic growth for about 15 years, austerity means increasing taxes coupled with slowing the growth of government spending instead of cuts. Increased taxes depress consumer spending that creates most jobs.This may explain the IMF's belated discovery that austerity is far less effective these days than in the past 30 years.
-Cost discipline in Germany and the Netherlands gives a permanent competitive advantage over spendthrift southern Eurozone countries and France,preventing the latter two from recovery through exports growth
-Germany and the Netherlands are experiencing very low growth in consumer incomes because of the euro. If they had retained their national currencies,those currencies would have appreciated,lowering import costs and that would have boosted consumer and business incomes,increasing spending on imports from southern Eurozone and France.
-The huge surpluses of northern Eurozone countries are being recycled through the European Central Bank to southern Eurozone and France. This makes them insist on austerity in southern Europe to ensure they get their money back regardless of economic damage.
-Loss of confidence in the southern Eurozone has led to a flight of capital to the northern Eurozone and internationally,resulting in high real interest rates and banking crises in southern Eurozone

One hope for the future is that the severe economic depression might prepare the ground for economic recovery. A "Schumpeterian wave of creative destruction" could clear out inefficient zombie companies and force economic efficiencies all round,including in government. Such waves have succeeded in renewing economies in economic history but this time European countries' entire private sectors might be the zombies,given the heavy burdens of government spending and taxation.

In the latter event,the economic solutions would be the breakup of the euro or,extremely unlikely,immediate full economic integration in a federal United States of Europe.
 
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R3volution_R3ady

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I thought I'd brighten up the thread with this.

 

YongHoi

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Troll infestation alert.
 

viper999

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Yes good points raised austerity has never worked without a compedative curencey devalution like in Russia, Argentina, or Iceland, Without that tool you are screwed but hey fu(k it its about federalization and the little people of the south can burn as long as the facist project can deliver the superstate.
The euro couldnt never have worked without fiscal and total economic intergration, but the populations would never have signed up knowing that! so this crash was part of the plan to introduce a federal state, when the real solution is less europe i.e by countries returning to past currencies, the solutions that are pushed is more intergration knowing what a f.uck up its caused already.
Crazy!!
 

Frank Galton

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AEP returns to the theme

Mr Begg said he had come to realise that EMU is constructed in such a way that the “entire burden of cost adjustment” falls on workers if there is macro-shock. He is right. An internal devaluation is achieved by forcing unemployment to such excruciating levels that it breaks the back of labour resistance to pay cuts. It is the polar opposite of a currency devaluation that spreads the pain. Note that Iceland’s unemployment is just 5.4pc today, and Britain’s is 7.7pc.
“Such a callous disregard for distributional justice - which we have witnessed in this country over the last five years - is a fatal flaw,” he said.
“For much of its history, European integration has proceeded on the basis of a ‘Permissive Consensus’. European citizens thought it was a good thing, or at least did no harm. I doubt that view is still current. From what I hear in the circles in which I move, today’s labour movement is disaffected from the European project,” he said.
“What will happen when people eventually realise that they are trapped in a spiral of deflation and debt. We may reach the tipping point,” he said.
Europe’s labour movement is the dog that has not barked in this long crisis. Bark it will.
Brave Ireland is the poster-child of EMU cruelty and folly - Telegraph
 

feargach

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mhagain

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Pat, Pat, Pat, Pat, Pat - no matter what you say is just going to be undermined by the fact that you're a fascist who has utterly religious belief in supply-side economics and you want to see wages fall. You have zero credibility.
 

southwestkerry

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austerity has its fans and has its plus points. what else can be done could tally for even more folly than so.
Put it another way its the best off a bad lot.
swK
 

R3volution_R3ady

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As Myles would have said:

When arguments are hard to muster,
and the facts are in your face,
when all you have is a heap of bluster
a drop of comedy videos ripped off from reddit.com is your only man!
The only thing hard to muster is the fact that you won't accept the writing has been on the wall for years. I'll expect another twenty of your threads containing the exact same arguments by the end of the week.
 

CarnivalOfAction

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AEP returns to the theme

"Mr Begg said he had come to realise that EMU is constructed in such a way that the “entire burden of cost adjustment” falls on workers if there is macro-shock. He is right. An internal devaluation is achieved by forcing unemployment to such excruciating levels that it breaks the back of labour resistance to pay cuts. It is the polar opposite of a currency devaluation that spreads the pain. Note that Iceland’s unemployment is just 5.4pc today, and Britain’s is 7.7pc.
“Such a callous disregard for distributional justice - which we have witnessed in this country over the last five years - is a fatal flaw,” he said.
“For much of its history, European integration has proceeded on the basis of a ‘Permissive Consensus’. European citizens thought it was a good thing, or at least did no harm. I doubt that view is still current. From what I hear in the circles in which I move, today’s labour movement is disaffected from the European project,” he said.
“What will happen when people eventually realise that they are trapped in a spiral of deflation and debt. We may reach the tipping point,” he said.
Europe’s labour movement is the dog that has not barked in this long crisis. Bark it will. "

Brave Ireland is the poster-child of EMU cruelty and folly - Telegraph
Unfortunately Beggs was one of the LP clowns who backed the Maastrict, Nice & Lisbon treaties which brought us this fiasco.
 

mhagain

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Unfortunately Beggs was one of the LP clowns who backed the Maastrict, Nice & Lisbon treaties which brought us this fiasco.
And there I was thinking that a mixture of supply-side economics, a false property boom, over-dependence on volatile sources of revenue and a complicit government who were behaving like the fattest kid who just got loose in the sweet shop were responsible for it. That's me told, I guess.
 

CarnivalOfAction

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And there I was thinking that a mixture of supply-side economics, a false property boom, over-dependence on volatile sources of revenue and a complicit government who were behaving like the fattest kid who just got loose in the sweet shop were responsible for it. That's me told, I guess.
Yep, all of those incompetent greedsters backed the Maastrict, Nice & Lisbon treaties as they facilitated their greed.
 

mhagain

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Yep, all of those incompetent greedsters backed the Maastrict, Nice & Lisbon treaties as they facilitated their greed.
You do realise that your argument is exactly equivalent to "those greedsters opposed the death penalty. Therefore the treaties are responsible for the fact that we have no death penalty"? Don't you? Or are you so terminally dense that you think people won't see the flaw in your pathetic argument here?

Basic lesson for the slow of learning - correlation does not imply causation.

Look, you're allowed admit the truth to yourself. You don't have to parrot a discredited political ideology, you're allowed to think for yourself. You're allowed to look at evidence and draw conclusions from it, even if those conclusions contradict that discredited political ideology. You're allowed to have a mind of your own, and you're even allowed to use it.
 
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