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Sancho Panza

The Wheels Are Coming Off The Whole Of Southern Europe

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how fast do you suggest?

As long as it takes, but no longer. I'm not suggesting just sitting back and expecting something to happen - I'm just suggesting that unravelling and rebalancing cannot be rushed.

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As long as it takes, but no longer. I'm not suggesting just sitting back and expecting something to happen - I'm just suggesting that unravelling and rebalancing cannot be rushed.

ok, lets suppose I have debt equivalent to my annual income costing me 10%.

I have acquired that debt by spending 10% more than I have in income....for easyness sake, lets say it took ten years to accumulate.

Already 10% of my income is paying the debt...and I am standing still, but I want to maintain my lifestyle...so i need the 10% PLUS the 10% I need to maintain.

so how much must I decrease my lifestyle and for how long....Some would say do it NOW....and due to the debt, I cant even stand still without losing 10% of my already austere lifestyle.

Course, I could declare bankruptcy....I could have the austerity of just the excess every year, WITHOUT the cost of the debt.

That is what these guys need to do...default on promises they arent ever going to keep...and that include ENTITLEMENT payments..

As for Fluffys point, I cant see how one can ever get into a justification for Government costs without ENTITLEMENT payments coming up very early in the conversation....

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Can anyone explain why austerity is such a bad thing?

Is default such a bad thing?

Without a default, austerity as a means to manage unbearable levels of debt, is a terrible idea, rather like living with a 200lb tumour.

Edited by GradualCringe

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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.

That's not entirely true. The poor who are getting poorer were barely living within their means anyway. The Euro - as a currency - is overvalued for certain countries. Austerity is mainly being implemented for reasons of 'internal devaluation' - since currency devaluation is not an option with the Euro.

It's generally agreed that the Euro was overvalued at adoption by some countries . . . Cyprus being a case in point. It led to the loss of half a million tourists. And Portugal's main problem was growth, not debt, which austerity only made worse. Austerity is no more a cure-all than devaluation . . . it is necessary to do both, as the IMF always used to. Until Latvia (pegged to the Euro) when the IMF was overruled by the EU. As a result, Latvia's economy shrunk 29 per cent and 10% of the workforce left the country.

All the PIIGS would benefit from some form of devaluation, which is impossible within the Euro. Income levels are going back to 1995 in Greece. Are the 'reforms' making the country more competitive? No, never will, it's not an exporting nation. It is just wiping out any kind of domestic economy that's left.

And tell me, how is the EU getting countries to live within their means when they are being saddled with even more debt? The bailouts are there to prop the Euro. The ESM was explicitly set up to protect the Euro. 500 billion to prop a non-working currency suggests to me that the Euro is a significant part of the problem.

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Can anyone explain why austerity is such a bad thing?

Is default such a bad thing?

Austerity, as the loony left call it, or living within one's means, is not a bad thing. But for a country that depends on credit to pay the bills default can be disastrous. There's a BBC documentary, called Nightmare in the City that never sleeps, about the New York bond crisis of the 70s. Well worth the watch if you can find it somewhere. Basically New York descended into Mad Max type anarchy.

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Austerity is probably OK until it's your job and family's welfare that's on the line. Then it's a different issue.

Default, well, it's the short sharp shock vs. the long grinding adjustment. You takes your choices. The end place is the same. It's all about how you get there.

The idea that default is some sort of easy get out is complete fallacy. And once you do it, well, there is no turning back from that point. It's not like you can say default and then a years later when everything is awful change your mind.

Technically as I think some people here have pointed out, the big issue is not austerity or default, it is all about adjustment rate and wealth distribution.

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?

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Austerity, as the loony left call it, or living within one's means

You need to drop the polemic. There are some on the left who refuse to acknowledge the consequence of deficits and debt, and needless to say they will be against austerity, but it's very hard to look at what's happening in, e.g., Spain and think that austerity isn't going to end badly. Austerity isn't the outcome, it's the route, and it's a bad route as currently implemented.

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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.

What a dumb statement.

The problem is obviously 370% Debt. Nothing can be 'fixed' with that. Doesnt matter what policy they pursue, austerity or anything else. They need to accept what cant be paid, wont be paid.

Of course, that will never happen because it would be the Germans/ECB who would suffer. So the germans will just keep on taking until the PIIGS are de-populated and Germans finally 'get it'

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As long as it takes, but no longer. I'm not suggesting just sitting back and expecting something to happen - I'm just suggesting that unravelling and rebalancing cannot be rushed.

Given that central bankers have made such a hash of planning the price and quantity of money, there's absolutely no chance that a re-balancing of eonomic activity can be contrived or planned without creating an absolute disaster, which is exactly what the European politicians have done in Southern Europe.

Prices are more than capable of doing the job if the politicians would just stop interfering through all manner of different measures to fix them.

Edited by GradualCringe

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You need to drop the polemic. There are some on the left who refuse to acknowledge the consequence of deficits and debt, and needless to say they will be against austerity, but it's very hard to look at what's happening in, e.g., Spain and think that austerity isn't going to end badly. Austerity isn't the outcome, it's the route, and it's a bad route as currently implemented.

I dont think you can have Austerity without a combined default too. As you say, its all a bit pointless suffering the pain and the situation not get better.

reminds me of the Monty Python sketch where the knight challenges the two travellers to fight to get across the lake...they lop off a leg, the knight demands to fight on, till all his limbs are cut off, but he still challenges to bite them to death.

This is exactly whats happening with current austerity...the knight ( the austere) is losing everything and yet demands to carry on. Funny in a fim, stupid in the extreme in real life.

Edited by Bloo Loo

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You need to drop the polemic. There are some on the left who refuse to acknowledge the consequence of deficits and debt, and needless to say they will be against austerity, but it's very hard to look at what's happening in, e.g., Spain and think that austerity isn't going to end badly. Austerity isn't the outcome, it's the route, and it's a bad route as currently implemented.

On the left?! What about 'deficits dont matter' Cheney?

Its hard to tell, given all the accounting games Clinton played, but the Repubs are probably just as bad as the democrats where deficits are concerned...Thatcher would have been too if she didnt have billions of pounds of state assets to sell.

ALL the establishment, both left and right are 100% plugged into the ponzi economic system, all demand MOAR MOAR printing...sure the right might have softer rhetoric, but thats all it is. They know like the traitors they are that they've spent the last 40 years gutting British industry, so we have nothing, no real economy or industrial base to fall back on, so their only strategy is to borrow off the chinese, then let the chinese buy up our properties/aquifers/roads/hospitals in return.

Its nothing more than Economic Treason. The making of Britain as a global indentured servitude state. For the next 1000 years, Britain will be rented back to its own citizenry, all because politicians are too weak and cowardly to abandon this evil monetary system.

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Without a default, austerity as a means to manage unbearable levels of debt, is a terrible idea, rather like living with a 200lb tumour.

try living through a defaul, not fun,

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ALL the establishment, both left and right are 100% plugged into the ponzi economic system . . .

It's nothing more than Economic Treason.

I think this is another very important issue and one wonders which will unravel first: the Eurozone finances or the politics?

AEP mixes up the two events in his article, but certainly he mentions Rajoy's indefensible position over the slush fund in Spain. Berlusconi is awaiting a ruling on his fraud case (July 30, that isn't waiting for the German elections) which could bring down a shaky Italian coalition. The Portuguese Government is wobbly and, in the last couple of days, Transparency International has re-affirmed that Greece is the most corrupt EU country - Finance Minister Venizelos still hasn't come clean about sitting on 'Lagarde's List'.

But Greece could soon be overtaken by Cyprus, where 99% of those polled believe that politicians are totally corrupt. Cyprus politicians did slightly better than the police, though. Only 94% of Cypriots believe that its police are corrupt.

Basically, the EU is increasingly dependent on a bunch of crooks with zero credibility to carry out its policies. And cynics might say, they're the only kind of economic traitors who would do it.

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Interesting that the word "austerity" has been introduced by politicians etc as a widely used policy name in recent years.

It wasn't used in the past when politicians would rather describe what was happening with expressions like "no pain no gain" and "if it isn't hurting it isn't working". Even Labour's Callaghan said stuff like "it was unrealistic to think nations could borrow themselves out of trouble"

There was never a widely used all encompassing word - until recently.

However there doesn't seem to be a single word for an alternative policy or at least the policy makers haven't agreed on one to use yet.

They could use any number of words like merry, pleasant, agreeable, easygoing, cheerful, laid-back, sunny and so on. It would be good if they could choose a name to use. Some politicians do say there is a choice.

People could even vote on it.

If some politicians are to be believed they should decide what word to use to describe the alternative policy to "austerity". Merry, pleasant, agreeable ................... - they would all do. All they have to do is make their mind up.

Edited by billybong

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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.

Maybe they should just cut government to the bone and beyond, and cut tax as well, starting with the poor and indirect taxes, and working up as and when funds become available. Whole departments should be axed. We can start with Media, Culture and Sport. Get rid of the whole thing.

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Austerity is probably OK until it's your job and family's welfare that's on the line. Then it's a different issue.

That's a good point. People are going to get hurt when the state starts making cuts. Unfortunately it's going to be the most vulnerable that get hurt the most. Unpleasant as it is, though, cuts are still needed.

Most people want some basic services to be provided by the state. Basic healthcare, education, police, military, aid for the poor and so on. But providing those things should be done as cheaply and efficiently as possible. If a certain amount of money is essential to provide those things then fair enough. The state does not, however, exist to provide a wonderful life for armies of bureaucrats and civil servants. Nor can we afford the Rolls Royce choices for all the things the state provides.

The size of the state should be rolled back to about the same levels as the late 90s. We still has hospitals and police, but there was a budget surplus too. Yes people will get hurt if that happens, which is not good. But I still feel that's the best option from where we are.

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I dont think you can have Austerity without a combined default too. As you say, its all a bit pointless suffering the pain and the situation not get better.

reminds me of the Monty Python sketch where the knight challenges the two travellers to fight to get across the lake...they lop off a leg, the knight demands to fight on, till all his limbs are cut off, but he still challenges to bite them to death.

This is exactly whats happening with current austerity...the knight ( the austere) is losing everything and yet demands to carry on. Funny in a fim, stupid in the extreme in real life.

Thing is "default" is actually happening, in the respect that the terms of the loans are constantly under review and are being renegotiated, like IR's etc. Look at the last time greece negotiated the debt.

http://news.sky.com/story/2087/explained-greeces-historic-debt-default

The debt is "mathematically" unpayable as many people point out. But the solution to this is to stealth default over time to suit the markets and the politicians. The more pressing issue is where this stealth default affects, the private or taxpayer.

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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.

What a dumb statement.

The problem is obviously 370% Debt. Nothing can be 'fixed' with that. Doesnt matter what policy they pursue, austerity or anything else. They need to accept what cant be paid, wont be paid.

Of course, that will never happen because it would be the Germans/ECB who would suffer. So the germans will just keep on taking until the PIIGS are de-populated and Germans finally 'get it'

Tbh its not a dumb statement. It's saying that austerity by shrinking the economy causes that total debt to GDP to rise. Because of that austerity as it is being implemented has no chance of working, and that vitor gaspar is wrong because cutting faster would simply cause that debt to GDP ratio to rise faster. You end up in a worse place than if you'd not cut at all.

This is not to say some austerity cannot be part of the solution. But whatever solution it is part of cannot have implicitly baked-in a rising debt to gdp ratio on top of an already massive 370% debt to gdp ratio as the current austerity policy does.

Edited by alexw

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Tbh its not a dumb statement. It's saying that austerity by shrinking the economy causes that total debt to GDP to rise. Because of that austerity as it is being implemented has no chance of working, and that vitor gaspar is wrong because cutting faster would simply cause that debt to GDP ratio to rise faster. You end up in a worse place than if you'd not cut at all.

This is not to say some austerity cannot be part of the solution. But whatever solution it is part of cannot have implicitly baked-in a rising debt to gdp ratio on top of an already massive 370% debt to gdp ratio as the current austerity policy does.

exactly...default along with Austerity is the only way....and GDP MUST fall, so please, make everyone aware that this is expected and normal when cutting excess expenditure.

All we have to find is £120bn in cuts...just to stand still.

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If a sovereign state had a balanced budget that would run a small surplus except for interest on its debt and it said to its creditors

'stuff you, we aren't paying, its unsecured debt and we've got an army, come and have a go at taking it if you fancy your chances'

What would actually happen?

Maybe the fact that no one would lend to them would be the stick they needed to impose a balanced budget for the future...

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If a sovereign state had a balanced budget that would run a small surplus except for interest on its debt and it said to its creditors

'stuff you, we aren't paying, its unsecured debt and we've got an army, come and have a go at taking it if you fancy your chances'

What would actually happen?

Maybe the fact that no one would lend to them would be the stick they needed to impose a balanced budget for the future...

the last line is the bankers "tanks in the street" argument...

People are still buying Piigs bonds.

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Look at it like this, if someone owed you £200 and when you went to collect it, she stabbed you in the leg and told you that if you came back, she would kill you... chances are you might write off the £200

Especially if when you went to the police, they said sorry mate, we can't help you

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  • 259 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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