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Sancho Panza

The Wheels Are Coming Off The Whole Of Southern Europe

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http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10172530/The-wheels-are-coming-off-the-whole-of-southern-Europe.html

'Europe’s debt-crisis strategy is near collapse. The long-awaited recovery has failed to take wing. Debt ratios across southern Europe are rising at an accelerating pace. Political consent for extreme austerity is breaking down in almost every EMU crisis state. And now the US Federal Reserve has inflicted a full-blown credit shock for good measure.

None of Euroland’s key actors seems willing to admit that the current strategy is untenable. They hope to paper over the cracks until the German elections in September, as if that is going to make any difference.

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 5pc this year. It has told journalists privately that the final figure may be -7pc. The Greek stabilisation is a mirage.

Italy’s slow crisis is again flaring up. Its debt trajectory has punched through the danger line over the past two years. The country’s €2.1 trillion (£1.8 trillion) debt – 129pc of GDP – may already be beyond the point of no return for a country without its own currency.

Standard & Poor’s did not say this outright when it downgraded the country to near-junk BBB on Tuesday. But if you read between the lines, it is close to saying the game is up for Italy.

Indeed. The International Monetary Fund has just slashed its growth forecast for Italy this year to -1.8pc. The accumulated fall in Italian output since 2007 will reach 10pc. This is a depression. Yet how is the country supposed to get out of this trap with its currency overvalued by 20pc to 30pc within EMU?

Spain’s crisis has a new twist. The ruling Partido Popular is caught in a slush-fund scandal of such gravity that it cannot plausibly brazen out the allegations any longer, let alone rally the nation behind another year of scorched-earth cuts. El Mundo says a “pre-revolutionary” mood is taking hold.

Portugal is slipping away. Professor João Ferreira do Amaral’s book - Why We Should Leave The Euro – has been a bestseller for months. He accuses Brussels of serving as an enforcer for Germany and the creditor powers.

Like Greece before it, Portugal is chasing its tail in a downward spiral. Economic contraction of 3pc a year is eroding the tax base, causing Lisbon to miss deficit targets. A new working paper by the Bank of Portugal explains why it has gone wrong. The fiscal multiplier is “twice as large as normal”, or 2.0, in small open economies during crisis times.

What is new is that Vitor Gaspar, the high priest of Portugal’s shock therapy, has thrown in the towel. He blames the fainthearted for refusing to slash with greater vigour. Needless to say, he still refuses to accept that a strategy of wage cuts and deflation in a country with total debt of 370pc of GDP was always likely to fail.

If Portugal does pull off an “internal devaluation” within EMU it will shrink the economic base. Yet the debt burden remains. This is the dreaded denominator effect. Public debt has jumped from 93pc to 123pc since 2010 alone.

All this is happening just as tapering talk by the Fed sends shockwaves through credit markets, pushing up borrowing costs by 70 basis points across Europe. Spanish 10-year yields are back to 4.8pc. These are higher than they look, since Spain is already in deflation once tax distortions are stripped out. Real interest rates are soaring.'

Austerity is much maligned these days,but I fail to see that Southern Europe has much choice other than to start living within it's means.The theory seems based on the notion that a GDP hit can be avoided and that most Western nations debts are sustainable and serviceable in the long term.

Can anyone explain why austerity is such a bad thing?

Is default such a bad thing?

Edited by Sancho Panza

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http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10172530/The-wheels-are-coming-off-the-whole-of-southern-Europe.html

'Europe’s debt-crisis strategy is near collapse. The long-awaited recovery has failed to take wing. Debt ratios across southern Europe are rising at an accelerating pace. Political consent for extreme austerity is breaking down in almost every EMU crisis state. And now the US Federal Reserve has inflicted a full-blown credit shock for good measure.

None of Euroland’s key actors seems willing to admit that the current strategy is untenable. They hope to paper over the cracks until the German elections in September, as if that is going to make any difference.

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 5pc this year. It has told journalists privately that the final figure may be -7pc. The Greek stabilisation is a mirage.

Italy’s slow crisis is again flaring up. Its debt trajectory has punched through the danger line over the past two years. The country’s €2.1 trillion (£1.8 trillion) debt – 129pc of GDP – may already be beyond the point of no return for a country without its own currency.

Standard & Poor’s did not say this outright when it downgraded the country to near-junk BBB on Tuesday. But if you read between the lines, it is close to saying the game is up for Italy.

Indeed. The International Monetary Fund has just slashed its growth forecast for Italy this year to -1.8pc. The accumulated fall in Italian output since 2007 will reach 10pc. This is a depression. Yet how is the country supposed to get out of this trap with its currency overvalued by 20pc to 30pc within EMU?

Spain’s crisis has a new twist. The ruling Partido Popular is caught in a slush-fund scandal of such gravity that it cannot plausibly brazen out the allegations any longer, let alone rally the nation behind another year of scorched-earth cuts. El Mundo says a “pre-revolutionary” mood is taking hold.

Portugal is slipping away. Professor João Ferreira do Amaral’s book - Why We Should Leave The Euro – has been a bestseller for months. He accuses Brussels of serving as an enforcer for Germany and the creditor powers.

Like Greece before it, Portugal is chasing its tail in a downward spiral. Economic contraction of 3pc a year is eroding the tax base, causing Lisbon to miss deficit targets. A new working paper by the Bank of Portugal explains why it has gone wrong. The fiscal multiplier is “twice as large as normal”, or 2.0, in small open economies during crisis times.

What is new is that Vitor Gaspar, the high priest of Portugal’s shock therapy, has thrown in the towel. He blames the fainthearted for refusing to slash with greater vigour. Needless to say, he still refuses to accept that a strategy of wage cuts and deflation in a country with total debt of 370pc of GDP was always likely to fail.

If Portugal does pull off an “internal devaluation” within EMU it will shrink the economic base. Yet the debt burden remains. This is the dreaded denominator effect. Public debt has jumped from 93pc to 123pc since 2010 alone.

All this is happening just as tapering talk by the Fed sends shockwaves through credit markets, pushing up borrowing costs by 70 basis points across Europe. Spanish 10-year yields are back to 4.8pc. These are higher than they look, since Spain is already in deflation once tax distortions are stripped out. Real interest rates are soaring.'

Austerity is much maligned these days,but I fail to see that Southern Europe has much choice other than to start living within it's means.The theory seems based on the notion that a GDP hit can be avoided and that most Western nations debts are sustainable and serviceable in the long term.

Can anyone explain why austerity is such a bad thing?

Is default such a bad thing?

I think default maybe the best choice for many of these countries in the medium and long term.

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back to front as usual.

The normal economy in most European states was actually propped and made lazy by continual deficit spending for Decades.

This "normal" economy has of course, broken under the weight of debt.

Austerity, the word they use for cutting back on OVERSPEND, is painful, but it is not being applied to where its needed...the elites are keeping theirs, the poor and the majority get the cuts.

These groups wont accept it is their fault and have to take the cuts, meanwhile, cafes are full, Government offices are as useless as ever and we have a the poor peering into the restaurants where the uncut feast on caviar and champagne.

The last decades of debt growth are NOT normal times, although people living through them would argue differently...

restoring this path cant work, and not taking it will lead to worse.

The wheels were coming off the DAY they decided that deficit spending was vital and they said it was OK at x% of GDP...this meant that unless the private sector grew at MORE than the GDP, the exponential maths of the borrowing more % than actual % growth of wealth meant at some point in the future, the debt would be unpayable.

The can has been kicked and its now dropped down the drain of debt.

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AEP?

:lol:

:lol:

Another 48hrs to save the Euro! Clearly the Torygraph would prefer to have the eurozone fall apart then the pro-EU stance they're about to adopt viz a referendum will not look so inconsistent.

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Austerity is much maligned these days,but I fail to see that Southern Europe has much choice other than to start living within it's means.The theory seems based on the notion that a GDP hit can be avoided and that most Western nations debts are sustainable and serviceable in the long term.

Can anyone explain why austerity is such a bad thing?

Is default such a bad thing?

Austerity - as practiced in Europe and the UK - will always have the problem where making large numbers of people unemployed in a recession (so they don't find alternative employment) automatically hikes expenditures and shrinks the tax base, making the deficit worse.

It has to be pointed out that hiking taxes on the very well-off - something that was done in post-war Austerity - has not even been attempted, even though this money is not well connected to aggregate demand. Disproportionately targeting the less well off - the people who already spend most of their income - has the effect of killing demand and making things worse. But we can't possibly tax rich people and corporates, because, well, we just can't right?

Default is not as bad as made out either, it may actually mean that banks have to do due diligence before handing out cash to dodgy governments. After all, someone had to lend them this money.

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Austerity - as practiced in Europe and the UK - will always have the problem where making large numbers of people unemployed in a recession (so they don't find alternative employment) automatically hikes expenditures and shrinks the tax base, making the deficit worse.

It has to be pointed out that hiking taxes on the very well-off - something that was done in post-war Austerity - has not even been attempted, even though this money is not well connected to aggregate demand. Disproportionately targeting the less well off - the people who already spend most of their income - has the effect of killing demand and making things worse. But we can't possibly tax rich people and corporates, because, well, we just can't right?

Default is not as bad as made out either, it may actually mean that banks have to do due diligence before handing out cash to dodgy governments. After all, someone had to lend them this money.

The austerity MUST be applied to Government....this means the tax base reduction is not as damaging as it might be...taxes go to spend on GOVERNMENT......It is Government that is sucking the land dry.

Austerity also means DEFAULTING on Government promises, and that include Entitlements to Public Sector workers and pensioners, AND Gilt holders.

And very importantly, Government MUST be honest and tell people that GDP is a scam while its own spending is included.

Edited by Bloo Loo

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Can anyone explain why austerity is such a bad thing?

Living within your means is good (i.e. balanced trade and no deficit), and realising that you haven't been living within your means and trying to do something about it is also good. What is less black and white is how you get from the latter to the former. In other words, you can have a good destination, but still follow an appalling route...

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Austerity is much maligned these days,but I fail to see that Southern Europe has much choice other than to start living within it's means.The theory seems based on the notion that a GDP hit can be avoided and that most Western nations debts are sustainable and serviceable in the long term.

Can anyone explain why austerity is such a bad thing?

Is default such a bad thing?

Southern Europe was managing before EMU. If you have monetary union without fiscal transfers, money pools in successful regions at the expense of others. You can only have German levels of interest rates and inflation if you're willing to become more German, or Germany is willing to pay for it. There has been great resistance to either from populaces.

Austerity is pro-cyclical i.e. it increases volatility. Whether this is good or bad depends on your point of view.

Default is bad if you're a creditor (directly or indirectly), relief if you're a debtor. Again all depends on where you're sitting.

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I think the Telegraph is saying that leaving the Euro would be the answer to all their problems and then they could be as successful as the UK.

Exactly, leaving the Euro will not help as it is not the Euro causing the problems, it is caused by people living beyond their means. If countries went back to their own currencies and overspend, then the countries would either suffer high levels of inflation or high interest rates to counter the risk.

If the countries could live withing their means then the Euro would work. Having your own currency isn't a magic fix as untilatley you will have to live within your means whether it is Merkel, the IMF or the Markets forcing you.

I think default maybe the best choice for many of these countries in the medium and long term.

Default would be a great option and possibly the only option. [edit] Wealth confiscation would also balance the books.

back to front as usual.

The normal economy in most European states was actually propped and made lazy by continual deficit spending for Decades.

This "normal" economy has of course, broken under the weight of debt.

The can has been kicked and its now dropped down the drain of debt.

Quite, unless the EU is willing to write off debt, default or printing occurs the whole thing will blow up.

I think that the EU will print and loan it to the bankrupt at near 0.5% to kick the can another 10 years or so.

Edited by Gone to Ireland.

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Living within your means is good (i.e. balanced trade and no deficit), and realising that you haven't been living within your means and trying to do something about it is also good. What is less black and white is how you get from the latter to the former. In other words, you can have a good destination, but still follow an appalling route...

But isn't we spend and other people pay even better then living within your means ? :lol:

Edited by easy2012

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The wheels arn't falling off, they fell off a couple of years ago, bailouts and increased levels of unsustainable debts have hidden it, but for much longer?

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Living within your means is good (i.e. balanced trade and no deficit), and realising that you haven't been living within your means and trying to do something about it is also good. What is less black and white is how you get from the latter to the former. In other words, you can have a good destination, but still follow an appalling route...

but but...greek debt is still rising.

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Southern Europe was managing before EMU. If you have monetary union without fiscal transfers, money pools in successful regions at the expense of others. You can only have German levels of interest rates and inflation if you're willing to become more German, or Germany is willing to pay for it. There has been great resistance to either from populaces.

Austerity is pro-cyclical i.e. it increases volatility. Whether this is good or bad depends on your point of view.

Default is bad if you're a creditor (directly or indirectly), relief if you're a debtor. Again all depends on where you're sitting.

I really dont understand this at all.

So a Piig has the same currency as Germany.

The only time this will be a problem with a euro wide interest base rate, is if the Piig is heavily in debt...it has nothing to do with the currency, it is the OVERSPENDING that is the problem....and Greece in Particular HID debts using clever banking frauds to HIDE the extent of it.

I can have an income the same as my neighbour, but he goes to the Seychelles first class 3 times a year and I go to Canvey Island once...how?...my credit card debt is out of control.

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but but...greek debt is still rising.

Quite - their economy needs to rebalance at a manageable pace. If a building has been condemned as unsafe, it's a good idea to let the current tenants vacate before you demolish it.

edit to add - I've no idea whether their deficit is rising, or just the debt (with possibly a static or shrinking deficit), but it's irrelevant. The whole economy had adapted to excessive public sector consumption, and you can't just press a button to change that.

Edited by tomandlu

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Quite - their economy needs to rebalance at a manageable pace. If a building has been condemned as unsafe, it's a good idea to let the current tenants vacate before you demolish it.

not sure the analogy is quite on the nail...it is the tenants that are making the Government building unstable...they all need to go on a diet..

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not sure the analogy is quite on the nail...it is the tenants that are making the Government building unstable...they all need to go on a diet..

... which is not the same as removing their intestines with a rusty scythe (sorry, getting carried away with analogies). Excessive public sector spending means that the whole economy adapts to that mode, and unravelling that interdependence cannot be done in a rush.

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The austerity MUST be applied to Government....this means the tax base reduction is not as damaging as it might be...taxes go to spend on GOVERNMENT......It is Government that is sucking the land dry.

Actually, two Governments sucking. The national Government and the EU. The majority of EU regulation simply duplicates functions that exist on a national level . . . the extra layer is either totally redundant or counter productive and often both.

Note that the EU itself doesn't do austerity. It has increased its budget every year in its 56 year history - currently 864billion for the period '07 - '13 - while adding other money sucking activities such as the ESM. (500bn.) It's a fantastic overhead.

Opponents of EU's fresh round of cuts in Greece note that having one less MP would save the jobs of 22 teachers.

It's all about priorities, innit.

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... which is not the same as removing their intestines with a rusty scythe (sorry, getting carried away with analogies). Excessive public sector spending means that the whole economy adapts to that mode, and unravelling that interdependence cannot be done in a rush.

how fast do you suggest?

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Actually, two Governments sucking. The national Government and the EU. The majority of EU regulation simply duplicates functions that exist on a national level . . . the extra layer is either totally redundant or counter productive and often both.

Note that the EU itself doesn't do austerity. It has increased its budget every year in its 56 year history - currently 864billion for the period '07 - '13 - while adding other money sucking activities such as the ESM. (500bn.) It's a fantastic overhead.

Opponents of EU's fresh round of cuts in Greece note that having one less MP would save the jobs of 22 teachers.

It's all about priorities, innit.

indeed, it is force that changes governments.....otherwise a famous quote from Injin is that "the solution for any problem in government is more Government."

I cant say I have heard a more true statement about Government at any time.

The EU needs a good kicking too.

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The austerity MUST be applied to Government....this means the tax base reduction is not as damaging as it might be...taxes go to spend on GOVERNMENT......It is Government that is sucking the land dry.

Austerity also means DEFAULTING on Government promises, and that include Entitlements to Public Sector workers and pensioners, AND Gilt holders.

And very importantly, Government MUST be honest and tell people that GDP is a scam while its own spending is included.

So, government doesn't actually do anything, just takes euro notes and shreds them?

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So, government doesn't actually do anything, just takes euro notes and shreds them?

in effect, that is exactly what it does.

I pay 100 in tax....they take 5 for collecting it, 25 for soldiers, 30 for themselves and 40 for boondoggles and diversity.

I might be happy for the 25 for soldiers, maybe the 5 for collecting it, but i dont need the other 70, so why should I pay for them? specially when those other 70 are for pensions, non jobs and things that produce no benefit to the community.

But i guess you might support the broken window fallacy too.

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  • 242 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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