Socialist Euro Nations still wallowing in economic malaise

May 2006
Ventura Ca
France rebels against austerity as Europe's recovery collapses
France’s finance minister sends tremors through European capitals with a defiant warning that his country would no longer try to meet deficit targets
A one Euro coin broken into several pieces
German GDP contracted 0.2pc, is France once again stuck at zero and Italy is already in a triple-dip recession

By Ambrose Evans-Pritchard

9:26PM BST 14 Aug 2014

Eurozone strategy is in tatters after economic recovery ground to a halt across the region and France demanded a radical shift in policy, warning that austerity overkill is driving Europe into a depression.

Growth slumped to zero in the second quarter, with Germany contracting by 0.2pc and France once again stuck at zero. Italy is already in a triple-dip recession.

Yields on 10-year German Bunds fell below 1pc for the first time in history, beneath levels seen during the most extreme episodes of deflation in the 19th century. French yields also touch record lows. Much of the eurozone is replicating the pattern seen in Japan as it slid into a deflation trap in the late 1990s.

It is unclear whether tumbling yields are primarily a warning signal of stagnation ahead or a bet by investors that the European Central Bank will soon be forced to launch quantitative easing, buying government bonds across the board.

Michel Sapin, France’s finance minister, sent tremors through European capitals with a defiant warning that his country would no longer try to meet its deficit targets and would not inflict further damage on its economy by tightening into the downturn. “I refuse to raise taxes to close any budget gaps,” he said.

“What is absolutely necessary is to adjust the pace of deficit reduction to the exceptional situation we are in today. Growth is too weak in Europe and inflation is too low. We must therefore stop reinforcing the causes of this depression,” he told RTL television.

“We must face the figures in front of us with realism. The truth is that, contrary to the forecasts of the International Monetary Fund and the [European] Commission, growth has broken down, both in France and in Europe.”

He halved his French growth forecast to 0.5pc this year and to little more than 1pc next year, too weak to stop unemployment hitting fresh highs. The IMF has already warned that there will be no job growth until 2016.

Germany has so far refused to yield any ground on austerity policies but is increasingly vulnerable. Revised data show that the economy has been far weaker than thought over the past two years, falling into a significant double-dip recession last year. Professor Paul De Grauwe, from the London School of Economics, said: “They are victims of their own folly. Germany needs massive investment in its energy sector and it should be doing it now while it can borrow for almost nothing.”

Mr De Grauwe said EMU elites have misdiagnosed the cause of Europe’s intractable slump, blaming it on lack of reform when it is in reality a “demand crisis” made worse by a debt purge since the financial crisis. “They are doing everything they can to stop recovery taking off, so they should not be surprised if there is, in fact, no take-off,” he said.

“It is balanced-budget fundamentalism and it has become religious. We know from the 1930s that if everybody is trying to pay off debt and the government then deleverages at the same time, the result is a downward spiral. The rigidities in the European economy have absolutely nothing to do with the problem we face today.”

Many German economists said one-off factors explained the “sudden stop” in the second quarter but Berlin’s Institute for Economic Research (DIW) warned that deeper forces may be at work, with a risk of recession as Germany suffers the blowback effects from sanctions against Russia. “The economy may shrink again in the third quarter,” it said.

Sigmar Gabriel, Germany’s vice-chancellor, blamed the slowdown on “geopolitical risks in eastern Europe and the Near East”.

The contraction of world trade over the early summer has undoubtedly played a role since Germany is highly-geared to global exports.

The signs of a policy revolt in France could prove a turning point in Europe. Mr Sapin said his country would miss its deficit target this year but not try to make up the ground because the shortfall was caused by the deflationary conditions in Europe. He pledged to cut the deficit at an “appropriate pace” but would not go further. It is likely to exceed 4pc of GDP.

President Francois Hollande has so far gone along with EMU austerity demands, imposing severe fiscal tightening in his first two years in office, even though the ECB refused to offset the effect with monetary stimulus.

The result has been a permanent slump, with industrial output down 14pc from its peak. Mr Hollande has suffered a collapse in his approval ratings and faces a mutiny by the Left-wing of his own Socialist Party. There is increasing speculation over whether he may be forced to resign before the end of his term in 2017.

However, Mr Hollande is known for pirouettes that come to little. It is too early to tell whether he is willing to form a “Latin alliance” with Italy to force a change in policy, launching what amounts to a rebellion against German policy doctrines. Any such demarche would risk a dangerous rupture with Berlin.

And this is just one of 36 at the URL I posted.
I’m amused that you think it is about austerity; I guess you missed the fact that France massively raised taxes on the richest citizens; how's that working for them?

Austerity is not the problem in Europe; it's their massive welfare system.

You see, eventually, you will start to run out of other people's money to spend.
May 2006
Ventura Ca
Austerity is to blame for the economic malaise of Europe. Maybe now they'll turn back all that nonsense and pursue the social democracy that has helped them be so successful since the end of the war.
Austerity is not the reason their economies suck. Why is it that so many think that Governments can SPEND their way out of recessions? If it were that easy we'd be spending trillions more.

Governments do not create GDP; nor do they increase the multiplier effect of money. You see, before a Government can spend anything, it must first extract it FROM the economy from those who earn it.

The problems and malaise in the EU can be directly attributed to their generous welfare systems and the REALITY that they have finally ran out of OTHER people's money to spend.

For decades EU countries have gutted their defense budgets in order to continue funding this welfare largess; now there is no more they can gut and continue to expect and rely on America to do their fighting for them.

Those chickens, have come home to roost; just as they will in our nation when the tab comes for the $18 trillion in debt we've amassed, a huge amount in the last six years, thinking we could BUY our way out of a recession spending $850 billion and printing money through Quantitative Easing; none of which have done anything to improve this economic malaise we are experiencing.

Class envy demagoguing won’t help either as evidenced by the French.
May 2006
Ventura Ca
(Please note above link so you don't have to ask for one later)
Austerity measures for the EU have been to not spend over their already bloated budgets for their socialist welfare systems.

So tell me, how does Government derive the money it needs to spend?
May 2006
Ventura Ca
Fiscal Austerity in Europe Doesn't Mean Large Spending Cuts
Veronique de Rugy | May 07, 2012

We are told that austerity in Europe has failed. The elections in France and Greece, for instance, are supposedly evidence of people’s opposition to severe cuts in spending. However, the growing anti-austerity backlash against Europe ignores one fundamental point: If there is austerity in Europe, in most cases it hasn’t taken the form of massive spending cuts.

Following years of large spending expansion, Spain, the United Kingdom, France, and Greece—countries widely cited for adopting austerity measures—haven’t significantly reduced spending since “austerity” supposedly started in 2008.

First, France and the U.K. have not cut spending. Second, when spending was actually reduced—between 2009-2011 in Greece, Italy, and Spain—the cuts were relatively small compared to the size of their bloated European budgets. While Italy reduced spending between 2009-2010, it also increased spending in the following year by an amount larger than the previous reduction. Most importantly, meaningful structural reforms were seldom implemented. Whenever cuts took place, they were always overwhelmed with large counterproductive tax increases.

This so-called balanced approach—some spending cuts for large tax increases—has been proven to be a recipe for disaster by economists. It fails to stabilize the debt, and it is more likely to cause economic contractions.

Fiscal Austerity in Europe Doesn't Mean Large Spending Cuts | Mercatus
May 2006
Ventura Ca
In Europe, time for true austerity
Half-hearted reforms won't work. European countries need to get serious about spending cuts.

May 18, 2012|By Veronique de Rugy


For several years now, European governments have tried versions of austerity — usually understood as an attempt to reduce the ratio of government debt to gross domestic product — in hopes of reviving the continent's flailing economies. But not only have their efforts failed, we're now told, they have actually made things far worse.

According to one naysayer, former Obama administration chief economic advisor Larry Summers, austerity efforts are "counterproductive" to growth. In a recent Bloomberg TV interview, Nobel laureate and economist Paul Krugman said, "I wish I'd been wrong for the sake of the world" about his prediction that "Austerians" pushing for fiscal retrenchment would destroy Europe. This sentiment is echoed in countries such as the Netherlands, among others, which have announced they will start spending again. And newly elected French President Francois Hollande's victory was pegged to his absolute rejection of austerity measures.

There are two basic problems with this growing anti-austerity backlash. First, where spending was actually reduced, the cuts have been relatively small compared to the size of the problem and meaningful structural reforms were seldom implemented. Second, to the extent declining Europe countries pursued austerity, it has mainly been through large tax increases. If the economies of Spain, France, Britain and other European nations are suffering, it's not because of "savage" spending cuts. It's because small spending cuts are overwhelmed by tax increases.

Consider Britain, where supposed austerity measures represent a "stunning failure of policy," according to Krugman in his New York Times column. In 2009, British Prime Minister Gordon Brown promised he would reform social programs and dramatically cut spending and taxes. Instead, he increased the top marginal income tax rate shortly before he left office. When David Cameron replaced him in 2010, he promised to pursue the same austerity measures. However, in 2011-12, spending increased from $1.15 trillion to $1.2 trillion, and public pensions have yet to be reformed. Instead, the government increased the capital gains tax, national insurance tax and value-added tax along with other fees and duties.

In Spain, the conservative party raised the retirement age from 65 to 67 in January 2011, but it has failed to implement comprehensive structural reforms. It was, however, successful in pushing through higher personal income and property tax rates in an attempt to balance its books. This year, the government has proposed reducing the deficit by $35.2 billion through a combination of tax increases ($16 billion) and spending cuts ($19.2 billion). But the spending reductions, even if implemented, won't be enough to compensate for an overly optimistic growth rate. Although the increase of the corporate income tax will be real, so will the increase in public pension and unemployment benefits.

Then there are the French, who elected a Socialist president for the first time since the 1980s. Hollande wants to replace what he calls austerity with "pro-growth" policies. But there is nothing austere about France's spending, which rose by $33.4 billion between 2009 and 2010 and an additional $29.5 billion in 2011. French public spending already equals 56% of GDP. Hollande's own wishful projections show total tax receipts rising from 45% of the economy to 47% in five years thanks to his plan to impose a 75% top marginal income tax rate for those earning more than $1.3 million and an increase in the corporate income tax. If this is pro-growth, then garlic breath is pro-romance.

Europe's austerity plans are far from austere - Los Angeles Times
May 2006
Ventura Ca
Paul Krugman and the European Austerity Myth
May 8, 2012 by Dan Mitchell

With both France and Greece deciding to jump out of the left-wing frying pan into the even-more-left-wing fire, European fiscal policy has become quite a controversial topic.

But I find this debate and discussion rather tedious and unrewarding, largely because it pits advocates of Keynesian spending (the so-called “growth” camp) against supporters of higher taxes (the “austerity” camp).

Since I’m a big fan of nations lowering taxes and reducing the burden of government spending, I would like to see the pro-tax hike and the pro-spending sides both lose (wasn’t that Kissinger’s attitude about the Iran-Iraq war?). Indeed, this is why I put together this matrix, to show that there is an alternative approach.

One of my many frustrations with this debate (Veronique de Rugy is similarly irritated) is that many observers make the absurd claim that Europe has implemented “spending cuts” and that this approach hasn’t worked.

Here is what Prof. Krugman just wrote about France.

The French are revolting. …Mr. Hollande’s victory means the end of “Merkozy,” the Franco-German axis that has enforced the austerity regime of the past two years. This would be a “dangerous” development if that strategy were working, or even had a reasonable chance of working. But it isn’t and doesn’t; it’s time to move on. …What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills? One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.​


I’m not sure how Krugman defines austerity, but it certainly doesn’t look like there’s been a lot of “slashing” in these two nations.

To be fair, government spending in the United Kingdom has grown a bit slower than inflation in the past couple of years, so one could say that there’s been a very modest bit of trimming.

There’s been no fiscal restraint in France, however, even if one uses that more relaxed definition of a cut. The only accurate claim that can be made about France is that the burden of government spending hasn’t been growing quite as fast since the crisis began as it was growing in the preceding years.

This doesn’t mean there haven’t been any spending cuts in Europe. The Greek and Spanish governments actually cut spending in 2010 and 2011, and Portugal reduced outlays in 2011.

But you can see from this chart, which looks at all the PIIGS (Portugal, Italy, Ireland, Greece, and Spain), that the spending cuts have been very modest, and only came after years of profligacy. Indeed, Greece is the only nation to actually cut spending over the 3-year period since the crisis began.


Additionally, I think much of the economic pain in these nations is the result of the large tax increases that have been imposed, including higher income tax rates, higher value-added taxes, and various other levies that reduce the incentive to engage in productive behavior.

Paul Krugman and the European Austerity Myth | International Liberty
Feb 2011
The greatest place on Earth California
I’m amused that you think it is about austerity; I guess you missed the fact that France massively raised taxes on the richest citizens; how's that working for them?

Austerity is not the problem in Europe; it's their massive welfare system.

You see, eventually, you will start to run out of other people's money to spend.
Capitalism does that everytime a republican is president.
Feb 2010
Sunny Bournemouth, Dorset
European governments are mostly centrist Conservative in nature. About where President Obama is on the political spectrum.