Sunday, December 8, 2013

Austerity is turning out to be Merkel wasting German taxpayer dollars

I am reading this article and the one thing that comes to my mind is none of this had to happen. Everything that has happened with the European economy over the past few years was always completely unnecessary and all of the responses have been wrong.

If we review the European economy in 2008 the picture was very different. Greece and Germany (the "model good" and "model bad" economy the media loves to talk about) were doing just about as well in their economic statistics, and one wouldn't anticipate anything that Merkel has turned out to be for the world.

Then the economic collapse of the world happened. Greece and the United States had been having good economies for a good long while on paper, and all three had been running annual deficits since 2001 when the so-called "fiscal conservatives" were in power in these countries.

The reason Greece had a deficit in the first place is that the government didn't have income to pay for the goods and services people in developed countries expect. It is the same in every country where some people get all the benefits of being in the country but hide their money in income tax free countries to avoid paying money. This was why they had a deficit and besides that one factor, everything else in 2009 was not looking unusually terrible. All of the countries in the EU were looking really good.

Today there are riots on the street in Greece and Spain because their economies is so poor today.

The EU government (led by the European People's Party, EPP, the right wing organization) decided the solution to the lack of revenue for the government to provide countries was to fire millions of public workers and somehow through magic this was going to balance the budget.

But the problem was that firing millions of employees was going to dry up their spending, and the contraction expanded to the private market, which is why Spain and Greece have unemployment rates north of 20%. The only major change over the past few years has been the austerity, with crashing demand for services and businesses folding as they are unable to get income to stay afloat as the economy contracts which feeds on itself.

The European Union government took a situation that was not ideal and turned it into a depression.

What should have been done is look at the issue, Greece needs to keep borrowing more money to pay the previous borrowers which means the interest will be compounded, and if Greece was ever unable to get borrowers (which I am unaware of any time this has ever happened, it sure didn't happen to Japan with their Debt/GDP ratio over 200%, the highest in the world) it would mean they would need to find some way to pay creditors, but this wasn't happening. If Greece wanted to pay off its debt it would need to find a way to cover the debt (which is preferable and keeps a high credit rating) or write it off (and no one would ever lend to the Greek government again). The solution then is to find revenue to cover expenses. This is not what the EU Parliament mandated however, and Greece has found their economy contract in an epic proportion, because they tried to screw a screw with a chainsaw.

Greece today has a demand curve that has shrunk which means there is no money to be made by starting a business (which is how economies grow) and it needs to grow somehow.  Being part of the Eurozone, it is represented in parliament and the decisions with the central bank are made together, and as long as the EPP controls parliament they are unlikely to do measures that will move the demand curve north so that starting businesses becomes profitable. People won't start making businesses in Greece if they are basically destined to fail. They need to adopt Keynesian economics and expand the demand curve by hiring unemployed Greeks and Spaniards so that it becomes profitable to start businesses because that is the only way the economy will grow.

On top of all these mistakes the northern states now need to subsidize the southern states to grow their economies so the EU can stay strong, which will waste French and German taxes on something that never had to happen. Fiscal conservatism at its finest.

Unless if the EPP wants to destroy the EU, and if that is the goal they are doing exactly what they would want to do, because continuing austerity from parliament will turn into so much apathy towards the north and parliament (and the majority of Europeans live in the North) which has the potential to divide the European Union. The resentment has the possibility of being a powerful force to drive Golden Dawn and other xenophobic parties into power in Greece and Spain (think Franco) on the anger towards Northern European governments which will be bad for the world.

I would rather see the EU work towards getting Greece, Spain and now Cyprus on their feet. Merkel (the de facto leader of the EPP and EU) saying that they will not support Cypriot banks is what really caused the current recession which was completely unnecessary and poorly though out. If someone wanted to destroy the Europe Union they would vote for the EPP because that is exactly what they are doing. If someone wanted to start a fascist revolution the first step would be removing the Schengen Treaty and Council of Europe which will remove the peaceful regional means of communication between national government and remove the peaceful means of reconciliation which can't lead to anything good.

I really hope the EPP is removed from power in the next election after their brutal mismanagement of the world's richest continent. I may be American, but Europe is our strongest ally and largest trading partner and I plan on going back to Europe ASAP, so I have a lot riding on the next election as does everyone in the world.

One extra source:

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