Category Archives: IMF/ECB
Thousands of homes targeted for seizure by banks
BANKS have initiated legal action to repossess thousands of houses and apartments, it has emerged.
This is despite a loophole in the law blocking repossessions.
A new report estimates that lenders have issued legal proceedings to take properties off up to 44,000 borrowers.
These are made up of residential and buy-to-let properties, according to calculations contained in a new report by Davy Stockbrokers.
An analysis estimates that what it calls non-cooperative borrowers number between 23,700 and 43,700.
FEARS
Letters threatening legal action have been sent to these borrowers.
And there are fears that large numbers of properties, particularly buy-to-lets, will be repossessed.
Legal action to repossess properties has been taken by both AIB and Bank of Ireland in around one in five of arrears cases, according to the report by Davy‘s Conail Mac Coille.
Ulster Bank said that up to a third of its property owners in arrears were making no payments at all. The bank said it would not hesitate to repossess in these cases.
Strong demand for family-type homes and the presence in the market of large numbers of cash buyers mean that a flood of newly repossessed properties can be absorbed.
A number of banks were also likely to keep repossessed properties on their books, take the rental income and slowly release them on the market, Mr Mac Coille wrote. Changes in the law to restore the right of lenders to repossess properties have been passed by the Houses of the Oireachtas and are expected to become law soon.
Davy reckons that arrears will keep rising this year, with large numbers of homeowners struggling to repay largely due to income decreases rather than job losses.
Two-thirds of those in arrears are in a job, according to comments by Central Bank governor Patrick Honohan.
For large numbers of borrowers in trouble the mortgage repayments are so high they represent more than half of their income, Davy reported, citing unpublished Central Bank studies.
A separate MABS (Money Advice and Budgeting Service) report found that distressed borrowers had just €777 a month left, after paying for utilities, food and childcare. But the mortgage was around €500 a month.
SPLIT
Banks will have to write down up to €11.5bn of mortgage debt. Most of this will be in the form of split mortgages where part of the mortgage owed is put to one side, and in most cases will probably have to be written off at the end of the mortgage term.
But one-third of borrowers are in such a bad financial position that a debt writedown will not work. These are mainly buy-to-let investors.
Half of investor mortgages are paying interest only. Despite this, almost 30,000 out of 150,000 buy-to-let mortgages are in arrears.
Irish Independent
via Thousands of homes targeted for seizure by banks – Independent.ie.
Austerity: The History Of A Dangerous Idea
Canada has now been governed for some time by conservatives who allegedly care about deficits and debt, yet when the implosion of American banks dragged Canada into a recession, our government started spending far more, not less. Years later, we continue to spend into the red and our debt lurches ever higher. By contrast, even since the ascent of the Conservative Party in London, the U.K. has been biting a fiscal bullet. They have chosen to trim government spending in the hope of jump-starting future economic growth—in a word, austerity. According to Mark Blyth, this is a bad idea: “Austerity doesn’t work. Period.” Believing it only persists due to “epistemic arrogance and ideological insistence,” he sets out to trace the intellectual history of austerity, going back to its roots, from Adam Smith, David Hume and John Locke to more recent proponents like Joseph Schumpeter, Friedrich Hayek and current German leader Angela Merkel. Then Blyth gives us a decidedly discouraging historical tour of austerity in action, which among other things makes us feel sorry for Great Britain’s prospects.
Blyth, a professor at Brown University, is an unusually gifted communicator of complex economic ideas. But though he pens such colloquial sentences—“Iceland, in many ways, was Ireland on crack”—this book is most suitable for readers with at least an intermediate familiarity with macroeconomics. Blyth does not pause long to explain the importance of bond yields. Yet his book provides a rich background for understanding the policy options facing those who would solve the ongoing Euro-crisis. Blyth also revisits the momentous American decision to bail out its banks, which continues to prompt Republican murmurings about the necessity for belt-tightening. Insofar as the United States and Europe have a debt crisis, it is partly the result of a banking crisis. Bank bailouts created much of the debt that we hear so much hyperventilating about. As for puny Iceland, it chose to let its toxic banks go bust, and its economy is now doing rather well.
Blyth is too rigorous to be an ideologue. He thinks austerity measures have their place, but only under the right conditions. Now, apparently, is not such a time.
via Austerity: The History Of A Dangerous Idea – Bookmarked, Books – Macleans.ca.
Irish Economy:- Hold Your Breath – We’ll be Underwater for a Very Long Time –
Kevin O’Rourke links to an interesting paper by Jeff Frankel which discusses different ways recessions are measured. The standard European measurement says that when an economy falls two quarters in a row it is officially in recession (we know all about that given our official double-dip). This measurement has the advantage of being statistically clear and simple. This, though, can lead to false readings. For instance, over two years the economy declines in half of the eight quarters – leaving it much lower. If, though, none of those quarters were consecutive, then according to the European measurement, there was no recession even though output has fallen. This may be an extreme case but it shows how quirky this measurement can be.
The US has a different way of measuring recessions. According to Frankel:
‘In the United States, the arbiter of when recessions begin and end is the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER). The NBER Committee does not use that rule of thumb (Europe’s two consecutive quarters of decline), nor any other quantifiable rule . . . When it makes its judgments it looks beyond the most recently reported GDP numbers to include also employment and a variety other indicators, in part because output measures are subject to errors and revisions. The Committee sees nothing special in the criterion of two consecutive quarters.’
The problem with this approach is that there is no single definitive measurement so disputes easily arise.
I’d like to introduce another way to measure a recession. It is based on the sinking-ship metaphor. A ship starts sinking. It eventually stops and starts to rise again. While it’s rising back to the surface we can say that it is in recovery mode. However, it will remain below water until it gets back to the surface.
Similarly with an economy: an economy goes into decline, eventually stops falling and starts rising. However, it remains metaphorically below water until it returns to the point at which it had started sinking. If an economy is below its pre-recession levels it remains ‘recessed’.
Take, for instance, the US Great Depression in the 1930s. The economy tanked big time in 1929. However, by 1935 the economy had experienced nearly three years of rising GDP, employment, consumer spending and investment. However, no one then (or now) would have said that the Great Depression was over by 1935 – it was still well below its 1929 level.
Let’s apply the sinking-ship measurement to the Irish economy, using the IMF projections out to 2018.
In 2007, the economy was generating a little over €43,000 for every woman, man and child. As seen, according to the IMF projections, even by 2018 the economy will not have returned to the 2007 level. It won’t happen until 2019. In other words, the economy will remain under-water for 11 years – in other words, ‘recessed’.
Of course, this is GDP – which is flattered by multi-national accounting practices (profit-tourism, etc.). What does it look like when we measure GNP per capita? Here we use the Government’s own assumptions in their end-of-the-decade scenario.
When looking at this domestic measurement (with all its faults) we find that the economy will be underwater for 14 years. 14 years. We won’t find ourselves above pre-recession levels until 2022. And if that’s not depressing enough, the ESRI’s John Fitzgerald estimates that even our GNP figures are over-stated given the presence of re-domiciled multi-nationals. The real GNP figures are substantially lower which suggests that a return to the surface could take even longer based on projected trends.
Staying with the metaphor, when the ship returns to the surface what kind of shape will it be in? Even though the economy has returned to the surface, many people will still be underwater. The Government’s end-of-the-decade scenario projects double-digit unemployment by 2019. Average real wages may not return to pre-recession levels until 2020 and even later. How many will still be living in deprivation, how many in poverty, how many will have emigrated? The ship may be back on the surface, hundreds of thousands won’t be.
To give another idea of what we’re facing into, let’s use the Government’s assumptions to track the ‘jobs recession’.
We won’t return to pre-crisis levels of employment until 2024. That’s 16 years under-water.
So when we start growing again – GDP, domestic demand, employment – just remember: we will have to grow for a long-time just to get back to where everything started collapsing. In other words, the ship may start rising soon but we will be underwater for a very long time.
Hopefully, you can hold your breath.
By Michael Taft,
– See more at: http://www.irishleftreview.org/2013/07/26/hold-breath-underwater-long-time/#sthash.RO78Qpia.dpuf
VIA
http://www.irishleftreview.org/2013/07/26/hold-breath-underwater-long-time/
How Europe’s Solution for Economic Crisis is Actually the Problem
Europe‘s current crisis is more than economic. Between the German government advocating a dangerous austerity policy and European authorities lacking any other suggestions, it is clear that the 2008 financial crisis is no longer solely responsible for the downward spiral of Europe.
The GDP for countries in Europe has fallen by a considerable amount: 5.3% for Greece, 3.9% for Portugal, 4.1% for Cyprus, 2.3% for Italy, and 2% for Spain. This is without even mentioning the recession into which France is entering. In the first quarter of this year, the European Union economy contracted by 0.7%, or one percent when only taking into consideration the eurozone.
If it was only the 2008 economic crisis that was responsible for all this, Europe would not be one of the only one to suffer so much. For example, the United States, the birthplace of this crisis, registered a 1.9% increase in their economy in 2013 [fr] while their unemployment rate was at its lowest in four years.
Europe, which for a long time has aimed to maintain growth that compares favorably with United States, now finds itself completely lost among incoherent policies and disputes between countries[fr].
One of the main reasons for this current instability in Europe is the evident failure of the European policy authorities when their proposals seem more than enigmatic. Restricting interchange fees as proposed by Michel Barnier, the European Union Commissioner for the Internal Market and Services, is a perfect example of the Commission taking measures that will not have any concrete impact.
Capping interchange fees, bank charges paid by retailers when they make a card payment, would not only increase personal bank charges [fr], as the banks would want to recuperate the money lost by this cap, but the retailers profit margin will also increase, as they rarely lower their prices just because their costs have decreased.
The other significant issue which has notably accelerated the decline of Europe is the restricted austerity policy which the majority of EU countries have undertaken. It would be more logical for Europe to take inspiration from the countries that have pulled through, i.e. the United States, in order to stimulate the market rather than only focusing on reducing the deficit.
Youth unemployment rate in Europe between 2005-2013 via Les Crises – public domain
The most frustrating aspect about this issue is that the majority of the European leaders agree on this point, but no one dares to confront the life-long defenders of austerity, also know as « Sparkurs » [de] in Germany and its strict chancellor, Angela Merkel [fr]. But there are also critics of austerity on the German side. Last week, Gilles Moëc, head economist at Deutsche Bank, admitted to the news outlet Agence France-Presse that “there were some errors” [fr] in the selected strategy.
However, it’s not as if the Merkel method was fully tried and tested, in fact, it was far from it. Portugal, for example, had never been in such a terrible state until it was subjected to the European austerity policy. In two years, its unemployment rate increased by 5.3%, its budget deficit by 1.1%. As for its public debt, it’s now 123% higher than its GDP.
Julio Salazar Moreno, Secretary-General of Spanish worker’s trade union, USO, believes that the countries within the European Union need to stop with the austerity policy [pt], according to online newspaper Público:
Os países da União Europeia (UE) têm de parar “de uma vez por todas” com a aplicação de medidas recessivas, porque os cidadãos, alerta, estão a viver no limite dos sacrifícios
The countries within the European Union (EU) must refrain from enforcing austerity policies “once and for all” because the alert citizens are living at the very limits of their possible sacrifices.
The sledgehammer approach is just as inefficient for Greece, claims Gregor Gyzi, a president from a left-wing parliamentary group in Germany, Bundestag, by addressing the Greek readers [el] of news247:
οι επιβληθείσες, κυρίως από την γερμανική κυβέρνηση, περικοπές σε μισθούς και συντάξεις, οι απολύσεις και οι ιδιωτικοποιήσεις, όχι μόνο ώθησαν την Ελλάδα σε βαθιά ύφεση και κοινωνικά προβλήματα, αλλά κατέστησαν και αδύνατη την επιστροφή των δανείων στο εγγύς μέλλον
Imposed primarily by the German government, salary and retirement cuts, redundancies and privatisations, are not only going to push Greece into a major recession and cause social problems, but its also going to make loan repayments equally impossible.
Emigration figures for Europe are also far from surprising. In two years, 2.5% of the Portuguese population left the country. Who would have said ten years ago that today many Europeans would leave the continent to work in countries like Angola or Brazil?
Facing this alarming development, it is even more depressing to hear the responses of others, like that of the Prime Minister of Luxembourg, Jean-Claude Juncker, also the former minister of the Eurogroup, who recently gave his thoughts on the European crisis [fr] and concluded that what Europe needs is some “TLC”: a statement which speaks for itself.
Written by Laurent Delors · Translated by Hayley Warden
Austerity and what your Government Should be doing for You
If all nations are in debt and all citizens are to be forced into lifelong austerity to pay off “their” creditors then the most important question in the world becomes:
Identifying the creditors and asking why they have precedence over the lives of people who did not create this problem.
Think clearly about this for a moment
“Austerity” means your lives and your children’s lives will be less free for decades. Since all nations are “in debt” then their must at its core a group of private creditors benefiting from this situation.
Government’s everywhere have the moral right as representatives of the people to weigh and balance private citizens rights against those of a small minority of other citizens. . It is moral and right for the governments to identify the core group of private people hiding behind all the debt shell entities who are supposedly “owed” money by these countries citizens.Those citizens likely never voted for the debts anyway.
Austerity for millions is not an acceptable situation for for the ordinary Citizen why should he recognize, take on the ill borrowed, non voted, “debts” of others . Why is it the politicians serve the interests of the “creditors” rather than the people they are purported to represent.
Millions of people should not be forced into a lifelong form of loss of freedom (which is what “Austerity” really means on an individual level for each citizen) as a result of putting false debts unto the backs of their governments.
So folks time to get off your ass and make your Government work for you
The Irish bail-out programme: The meaning of exit
WHEN tapes of conversations between senior executives at the failed Anglo Irish Bank at the height of the financial crisis in 2008 were leaked in June, Irish credibility as a true penitent among the five bailed-out euro-zone countries took a knock. At last month’s European summit Angela Merkel, the German chancellor who calls the shots in the 17-state currency block, expressed her contempt for the bankers’ conduct, which included crass anti-German sentiment.
But any fears that this unwelcome reminder of past sins and sinners might upset Ireland’s path to exit from the rescue programme have been short-lived. This week’s review by the troika – the European Commission, the European Central Bank (ECB) and the IMF – concluded that Ireland should be able to leave on schedule by the end of 2013. That’s precisely three years after fiscal and banking woes forced the Irish to go cap in hand for €67 billion ($87 billion) of official loans from Europe and the IMF.
A punctual Irish exit has seemed likely for some time if only to show that the German-inspired programmes of austerity and structural reform can work. The worse things get in other bailed-out countries – Greece, Portugal, Cyprus and Spain (for its banks) – the more that Ireland is favoured. Thus Portugal’s recent political ructions, which has caused the planned inspection by the troika on July 15th to be postponed, have strengthened Ireland’s hand.
Moreover, Irish debt managers have deftly exploited chances to raise funds as Ireland’s fiscal credibility improved and its bond yields subsided. They have benefited along with the other crisis countries from the ECB’s commitment last September to make unlimited purchases of bonds in secondary markets under strict conditions – its “Outright Monetary Transactions” (OMT) programme, which has proved so successful a deterrent that it has not yet been used. Helped by the debt-management agency’s forays into the markets, the Irish government is now fully funded into early 2015.
That’s handy because on the economic front things haven’t been going so smoothly. Irish cheerleaders can no longer brag about their country being a bright spot in the recessionary gloom on the euro-zone southern and western periphery. In fact, GDP has shrunk for three consecutive quarters (the second half of last year and the first quarter of 2013) as exports have been hit first by a slowdown in global trade and secondly by the lapsing of patents on blockbuster drugs that have hurt pharmaceutical exports. The budget deficit remains high at 7.5% of GDP and public debt will reach 124% this year, a figure that underestimates the effective burden because a big chunk of Irish GDP is profits made by foreign multinationals which are lightly taxed.
The Irish government thus has good reasons to be nervous about having to fend for itself. That’s why Michael Noonan, the finance minister, is angling for a backstop to be available after the bail-out ends. But it is not just a credit line that the Irish are seeking: they want to be eligible for the ECB’s OMT programme.
That will be possible, however, only if the Irish apply to the European Stability Mechanism (ESM), the eurozone’s bail-out fund, for an “enhanced conditions” credit line. The Irish argue that there would be no need to comply with extra conditions, but whether the other euro-zone finance ministers who are on the board of the ESM will concur remains to be seen. Ireland may find that the best it can secure is a deal where it is still subject to intrusive monitoring.
If all goes to plan the Irish exit from its ignominious bail-out at the end of this year will be hailed as a big success. But the reality will be fuzzier. The official funding may end but the price of support remaining available if necessary is that Ireland will not secure full independence.
via The Irish bail-out programme: The meaning of exit | The Economist.
Why austerity theory is the economist’s atomic bomb
ON August 6, 1945, America dropped an atomic bomb on Hiroshima, instantly killing 70,000–80,000 people and injuring another 70,000. The atomic bomb changed the world. President Truman promised a ‘rain of ruin’ would fall on America’s enemies if they didn’t surrender.
The chief architect of the atomic bomb project was a physicist, Robert Oppenheimer. Mr Oppenheimer had mixed feelings about his project. Initially, he was delighted that it worked at all.
Looking back, this relief is understandable. This was a world war in which millions had already died. The US leaders were sure Germany, Japan and Russia were also working on a nuclear bomb, so there was intense pressure to get the job done.
But after the bombings, Mr Oppenheimer expressed regret that the bomb had been used, citing a passage from Hindu holy book the ‘Bhagavad Gita’: “Now I am become Death, the Destroyer of Worlds.”
Others involved in the making of the atomic bomb saw it as a problem to solve, a part of the war effort.
While they were saddened by the deaths of tens of thousands of civilians, the scientists were justified in trying to find the answer to the question put to them by the politicians and generals. Their research was, to some extent at least, independent of what the research was used for.
It’s not atomic physics, but economic theories have the potential to alter the lives of millions of people.
The wrong theory, implemented as policy, can reduce the living standards of millions of people over time, and harm the development of generations of workers and their families. Take Zimbabwe, for example, where a hyperinflation has destroyed the nation’s wealth.
Or go back in time to the Meiji Restoration in Japan in 1868 when Japan modernised, opened up to trade, and eventually militarised itself by 1905.
The openness policy championed by the Meiji dynasty led to a huge increase in living standards for the Japanese people, and, not incidentally, led to the militarisation that would one day help push the Japanese into confrontations with other world powers.
Economic theories are powerful things, to be used and misused. Those who write economic theory and do economic policy need to be aware of the consequences of what they are doing.
Read last year’s budget documents. You’ll find Appendix F on the web. Appendix F is a thoughtful, careful analysis of the distributional consequences of austerity policies on the Irish people, showing exactly who has been hit by these policies, and by how much.
But at least those in power in Ireland are aware of the consequences of their actions.
Not so for other proponents of austerity, where their research is of the ‘fire and forget’ type, divorced from the potential impact of their research.
Economists who help satisfy the consensus view are often feted, whether they are right or wrong, and when they are wrong, they walk away unscathed. There is nothing wrong with being wrong: things change, and no one is perfect.
But when you’re wrong – or worse, when your work is being misused – I believe there’s an imperative to shout stop.
Another example: economists Carmen Reinhart and Ken Rogoff wrote a celebrated paper showing increasing government deficits harms growth: a country was likely to stagnate once its government debt-to-national output ratio exceeded 90pc.
Their finding implied deficit spending was bad, and because this fed a conservative need to reduce government spending through austerity, Mr Rogoff and Ms Reinhart’s paper was instantly adopted as gospel by the serious people in dark suits for this reason.
The paper was recently torn apart under serious scrutiny, but from 2010 to 2013, Mr Rogoff and Ms Reinhart made no attempt to modify their analysis or to chasten those who tried to use it for different means. Compare the Rogoff and Reinhart debacle with a recent example from Sweden, where one researcher, Jonas Himmelstrand, argued early childhood programmes increased the chances of mental health problems later on.
He cited a series of studies in his work. The author of one of the main studies was very quick to point out there was no substance whatsoever behind Mr Himmelstrand’s statement that a decline of mental health in young people in Sweden was related to daycare.
Eventually, those promulgating the notion of austerity as the only answer are going to be asked the same questions asked of the scientists on the project that birthed the atomic bomb: are you okay with how people have used your research?
Austerity is forcing millions to suffer needlessly. As unemployment rises and political realities force this to become a serious constraint on policy, austerity policies will be ditched. What will we have then?
Dr Stephen Kinsella is a senior lecturer in economics at the University of Limerick
via Why austerity theory is the economist’s atomic bomb – Independent.ie.
How Austerity Has Failed
Austerity has failed. It turned a nascent recovery into stagnation. That imposes huge and unnecessary costs, not just in the short run, but also in the long term: the costs of investments unmade, of businesses not started, of skills atrophied, and of hopes destroyed.
What is being done here in the UK and also in much of the eurozone is worse than a crime, it is a blunder. If policymakers listened to the arguments put forward by our opponents, the picture, already dark, would become still darker.
How Austerity Aborted Recovery
Austerity came to Europe in the first half of 2010, with the Greek crisis, the coalition government in the UK, and above all, in June of that year, the Toronto summit of the group of twenty leading countries. This meeting prematurely reversed the successful stimulus launched at the previous summits and declared, roundly, that “advanced economies have committed to fiscal plans that will at least halve deficits by 2013.”
This was clearly an attempt at austerity, which I define as a reduction in the structural, or cyclically adjusted, fiscal balance—i.e., the budget deficit or surplus that would exist after adjustments are made for the ups and downs of the business cycle. It was an attempt prematurely and unwisely made. The cuts in these structural deficits, a mix of tax increases and government spending cuts between 2010 and 2013, will be around 11.8 percent of potential GDP in Greece, 6.1 percent in Portugal, 3.5 percent in Spain, and 3.4 percent in Italy. One might argue that these countries have had little choice. But the UK did, yet its cut in the structural deficit over these three years will be 4.3 percent of GDP.
What was the consequence? In a word, “dire.”
In 2010, as a result of heroic interventions by the monetary and fiscal authorities, many countries hit by the crisis enjoyed surprisingly good recoveries from the “great recession” of 2008–2009. This then stopped (see figure 1). The International Monetary Fund now thinks, perhaps optimistically, that the British economy will expand by 1.8 percent between 2010 and 2013. But it expanded by 1.8 percent between 2009 and 2010 alone. The economy has now stagnated for almost three years. Even if the IMF is right about a recovery this year, it will be 2015 before the economy reaches the size it was before the crisis began.
The picture in the eurozone is worse: its economy expanded by 2 percent between 2009 and 2010. It is now forecast to expand by a mere 0.4 percent between 2010 and 2013. Austerity has put the crisis-hit countries through a wringer, with huge and ongoing recessions. Rates of unemployment are more than a quarter of the labor force in Greece and Spain (see figure 2).
When the economies of many neighboring countries contract simultaneously, the impact is far worse since one country’s reduced spending on imports is another country’s reduced export demand. This is why the concerted decision to retrench was a huge mistake. It aborted the recovery, undermining confidence in our economy and causing long-term damage.
Why Fiscal Policy
Why is strong fiscal support needed after a financial crisis? The answer for the crisis of recent years is that, with the credit system damaged and asset prices falling, short-term interest rates quickly fell to the lower boundary—that is, they were cut to nearly zero. Today, the highest interest rate offered by any of the four most important central banks is half a percent. Used in conjunction with monetary policy, aggressive and well-designed fiscal stimulus is the most effective response to the huge decrease in spending by individuals as they try to save money in order to pay down debt. This desire for higher savings is the salient characteristic of the post–financial crisis economy, which now characterizes the US, Europe, and Japan. Together these three still make up more than 50 percent of the world economy.
Of course, some think that neither monetary nor fiscal policy should be used. Instead, they argue, we should “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” In other words, sell everything until they reach a rock-bottom price at which point, supposedly, the economy will readjust and spending and investing will resume. That, according to Herbert Hoover, was the advice he received from Andrew Mellon, the Treasury secretary, as America plunged into the Great Depression. Mellon thought government should do nothing. This advice manages to be both stupid and wicked. Stupid, because following it would almost certainly lead to a depression across the advanced world. Wicked, because of the misery that would follow.
Austerity in the Eurozone
Some will insist that the eurozone countries had no alternative: they had to retrench.
This is true in the sense that members have limited sovereignty, wed as they are to a single currency, and had to adapt to the dysfunctional eurozone policy regime. Yet it did not have to be this way.
1. The creditor countries, particularly Germany, could have recognized that they were enjoying incredibly low interest rates on their own public debt partly because of the crises in the vulnerable countries. They could have shared some of this windfall they enjoyed with those under pressure.
2. The needed adjustment could have been made far more symmetrical, with strong action in creditor countries to expand demand.
3. The European Central Bank could have offered two years earlier the kind of open-ended support for debt of hard-pressed countries that it made available in the summer of 2012.
4. The funds made available to cushion the crisis could have been substantially larger.
5. The emphasis could then have been more on structural reforms, such as easing labor regulations and union protections that restrain hiring and firing and raise labor costs, and less on fiscal retrenchment in the form of reduced spending. Reduced labor costs could have made these nations’ export industries more competitive and encouraged domestic hiring.
It is possible to admit all this and yet argue that without deep slumps, the necessary pressure for adjustment in labor costs that is inherent in the adoption of a single currency (which is a modern version of the gold-standard-type mechanism that once ruled the advanced nations and helped bring on the Great Depression) would not have existed.
This, too, is in general not true.
1. In Greece, Ireland, Portugal, and Spain, at least, the private sector was in such a deep crisis that additional downward pressure as a result of rapid fiscal retrenchment simply added insult—and more unemployment—to deep injury.
2. In Italy, the pressure from years of semi-stagnation, with many more to come, would probably have been sufficient to restructure the labor markets, to bring about lower labor costs, provided structural reforms of the labor market were carried out, measures allowing companies to reduce their workforces and adjust wages more easily.
In short, the scale of the austerity was unnecessary and ill-timed. This is now widely admitted.
Austerity in the UK
The UK certainly did have alternatives—a host of them. It could have chosen from a wide range of different fiscal policies. The government could, for example, have:
1. Increased public investment, rather than halving it (initially decided by Labour), when it enjoyed zero real interest rates on long-term borrowing.
2. It could have cut taxes.
3. It could have slowed the pace of reduction in current spending.
It could, in brief, have preserved more freedom to respond to the exceptional circumstances it confronted.
Why did the government not do so?
1. It believed, and was advised to believe, that monetary policy alone could do the job. But monetary policy is hard to calibrate when interest rates are already so low (at or close to zero) and potentially damaging particularly in the form of asset bubbles. Fiscal policy is not only more direct, but it can also be more easily calibrated and, when the time comes, more easily reversed.
2. The government believed that its fiscal plans gave it credibility and so would deliver lower long-term interest rates. But what determines long-term interest rates for a sovereign country with a floating exchange rate is the expected future short-term interest rates. These rates are determined by the state of the economy, not that of the public finances. In the emergency budget of June 2010, the cumulative net borrowing of the public sector between 2011 and 2015–2016 had been forecast to be £322 billion; in the June 2013 budget, this borrowing is forecast at £539.4 billion, that is, 68 percent more. Has this failure destroyed confidence and so raised long-term interest rates on government bonds? No.
3. It believed that high government deficits would crowd out private spending—that is, the need of the government to borrow would leave less room for private borrowing. But after a huge financial crisis, there is no such crowding out because private firms are reluctant to invest, and consumers are reluctant to spend, in a weak economic environment.
4. It argued that the UK had too much debt. But the UK government started the crisis with close to its lowest net public debt relative to gross domestic product in three hundred years. It still has a debt ratio much lower than its long-term historical average (which is about 110 percent of GDP).
5. The government argued that the UK could not afford additional debt. But that, of course, depends on the cost of debt. When debt is as cheap as it is today, the UK can hardly afford not to borrow. It is impossible to believe that the country cannot find public investments—the cautious IMF itself urges more spending on infrastructure—that will generate positive real returns. Indeed, with real interest rates negative, borrowing is close to a “free lunch.”
6. The government now believes that the UK has very little excess capacity. But even the most pessimistic analysts believe it has some. Of course, the right policy would address both demand and supply, together. But I, for one, cannot accept that the UK is fated to produce 16 percent less than its pre-crisis trend of growth suggested. Yes, some of that output was exaggerated. There is no reason to believe so much was.
Assessment of Austerity
We, on this side of the argument, are certainly not stating that premature austerity is the only reason for weak economies: the financial crisis, the subsequent end of the era of easy credit, and the adverse shocks are crucial. But austerity has made it far more difficult than it needed to be to deal with these shocks.
The right approach to a crisis of this kind is to use everything: policies that strengthen the banking system; policies that increase private sector incentives to invest; expansionary monetary policies; and, last but not least, the government’s capacity to borrow and spend.
Failing to do this, in the UK, or failing to make this possible, in the eurozone, has helped cause a lamentably weak recovery that is very likely to leave long-lasting scars. It was a huge mistake. It is not too late to change course.
via How Austerity Has Failed by Martin Wolf | The New York Review of Books.
Austerity News From around the World
In our greed for ideology, we gorged on light-touch regulation
Irish Examiner
But there’s a problem with austerity. It dawned on me recently that I admire austerity. Some of my life-long heroes were austere. But they practised austerity, they didn’t impose it. When there isn’t a true, genuine, shared austerity, for a higher …
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Ireland : No more austerity ( and dump the euro )
Forbes
Today, my wife and I are traveling to Ireland to visit the town where my grandfather grew up (and maybe have a beer or two–if we survive my driving!). The economy there presents a sad case study for the austerity programs being forced on economies …
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An end to austerity will not boost Europe
Financial Times
The eurozone periphery is on a risky path to end fiscal austerity and accept larger budget deficits. Portugal is the most recent dramatic shift in that direction; Italy, Spain and even France are also abandoning plans to cut spending and raise taxes …
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Civilians on unpaid leave in Pentagon austerity move
Reuters
WASHINGTON, July 8 (Reuters) – Civilian defense workers across the United States began taking unpaid leave on Monday in a Pentagon-imposed austerity move expected to save $1.8 billion through Sept. 30 by effectively cutting the pay of about 650,000 …
See all stories on this topic »Greek municipal workers riled by government’s austerity plans
Globe and Mail
Greek municipal workers riled by government’s austerity plans Add to … The Globe and Mail. Published Monday, Jul. 08 2013, 3:01 PM EDT. Last updated Monday, Jul. 08 2013, 3:28 PM EDT. Oops, something bad just happened, don’t worry, I’m sure it is our …
See all stories on this topic »‘Maariv’ management says paper won’t print
Jerusalem Post
The management of Hebrew daily Maariv announced Monday that the newspaper would not be printed for Tuesday morning, due to austerity measures. Employees were reportedly instructed to stop work on the current edition, but they instead decided to take …
See all stories on this topic »IMF, smokescreens and visions
The Express Tribune
There is nothing home-grown about the IMF austerity packages, which have delivered little in Europe or elsewhere. But, at least, the IMF has a vision. Some economist like Joe Stiglitz view it as immune to evidence and that is why they dub this vision …
See all stories on this topic »Portugal back from the brink, but risks loom
Sydney Morning Herald
The rift was all about the austerity that Portugal is being forced to carry out in exchange for its bailout from the troika of European Union, International Monetary Fund and European Central Bank. Vitor Gaspar, who was an architect of the cutbacks …
See all stories on this topic »Has Xi’s graft crackdown run out of steam?
South China Morning Post
President Xi Jinping has consulted retired party leaders on his anti-corruption and austeritycampaign, the Communist Party’s official newspaper reported on Monday – a move some analysts believe is a sign that the current leadership lacks the …
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UAE royals eschew wedding feasts to set example of austerity
Financial Times
As Muslims across the region prepare for the start of the annual month-long Ramadan fast this week, the message is going out strongly from Gulf royals, mosques and the street that – theoretically at least – waste is out and austerity is in. It is a …
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Indonesia: Draconian austerity amidst impressive economic growth
In Defense of Marxism
The fuel price increase in Indonesia is part of the capitalist austerity which is now being implemented all over the world. The capitalist crisis that exploded in 2007 has not subsided. On the contrary, it is getting deeper. For the capitalists, there …
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Georgiades Says Cyprus Making ‘Good Progress’ Before Aid Review
Businessweek
Cypriot Finance Minister Haris Georgiades expressed optimism about the first review later this month of the government’s progress in meeting budget-austerity conditions tied to the international rescue of the country. “We are doing good progress …
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Austerity Discredited, Not Defeated – Time to Fight for Jobs and GrowthTruth-Out Fighting AusteritySocialist Project
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Athens mayor ‘physically attacked’ over job cutsRT (blog)
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Portugal general strike rejects austerityWorkers World |
Anglo Irish Bank- Drumm didn’t want any ‘b*ll*xology’ from Central Bank ‘clowns’
Anglo: Central bank boss Honohan says people ‘energised’ by tapes
Irish Independent
Ganley shown minutes from Anglo Irish meeting on ‘overcharging’. Businessman Declan Ganley was shown minutes from a meeting at Anglo Irish Bank that raise serious questions about how interest was applied to loans.
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Tapes show Anglo executives discussed run on deposits
Irish Times
Discussing how they might encourage the Central Bank to provide “fallback” funds Mr Drumm is heard to say it may be time for Anglo Irish to have a “conversation with our friends on Dame Street [the Central Bank],” due to the volume cash withdrawals.
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David Drumm: ‘I’ll no longer be made a scapegoat for banking crisis’Irish Independent
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‘I’m beat, I am totally beat at this stage’ – ‘Oh, join the gang, ha, ha, ha!’Irish Independent |
Drumm didn’t want any ‘b*ll*xology’ from Central Bank ‘clowns’
irishtimes.comDavid Drumm attacked the ‘drip, drip, drip’ release of the tapes
RTE.ie
Former Anglo Irish Bank chief executive David Drumm has said he will no longer allow himself to be a scapegoat for the banking crisis. Mr Drumm issued his statement to RTÉ news, as the transcripts of more recordings he had with another former Anglo …
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‘The market is drunk!’
Irish Independent
S&P, the bank credit rating agency, has just issued a new note warning investors to be wary ofAnglo Irish Bank. David Drumm, the bank’s chief executive, calls up John Bowe, head of treasury, to discuss what it all means for Anglo. The conversation …
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Anglo: New tapes reveal meekness of State’s watchdogs
Irish Independent
I just was not asked about tapes, says Dukes. THE former chairman of Anglo Irish Bank did not reveal the existence of the Anglo Tapes to major inquiries into the collapse of the banking system because he was “not asked about” them.
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Ganley shown minutes from Anglo Irish meeting on ‘overcharging’
Irish Independent
Businessman Declan Ganley was shown minutes from a meeting at Anglo Irish Bank that raise serious questions about how interest was applied to loans. Also in this section. Super-rich duped in €30m US land scheme · Beer could be the answer to all our …
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Austerity Today- Austerity Won’t Work if the Roof Is Leaking
Austerity Won’t Work if the Roof Is Leaking
Anxious, austerity-minded, but worldly: the young Britons of Generation A
Calls for a 5pc rise in welfare cash for our poorest OAPs
Bulgaria’s president calls for early elections amid mass anti-government protests
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| The withering of America’s exception agriculturelle Financial Times Lacking the money for a proper stimulus and the time to wait for the healing power of austerity, Europe’s leaders have pinned their economic hopes on trade with the US. Negotiations on the proposed transatlantic trade and investment partnership, which … See all stories on this topic » |
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| Ipsa: MPs’ role in our democracy ‘should be recognised’ Telegraph.co.uk Independent Parliamentary Standards Authority (Ipsa) chairman Sir Ian Kennedy admitted that theausterity being felt by the country made its review of MPs’ salaries and pensions tougher, but said that the role MPs play in a democratic system means they … See all stories on this topic » |
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| China: luxury dining goes mid market Financial Times (registration) (blog) There is plenty of room for skepticism about whether Beijing’s latest austerity drive will have any lasting impact on the per capita consumption of Lamborghinis by government officials. But in one area it clearly has had a marked effect: luxury dining. See all stories on this topic »Italian austerity drive forces Vatican to pay more property tax BusinessGhana More ». Italian austerity drive forces Vatican to pay more property tax. News Date: 5th July 2013. The Vatican said Thursday it had to pay an extra 5 million euros (6.5 million dollars) in property tax last year as a result of austerity measures … See all stories on this topic » |
So What is Neoliberalism all About?
Neoliberalism means:
–controlling the economy by shifting from the public sector to the private sector;
–the reduction of deficit spending;
–limiting subsidies;
–reforming tax law often by lowering taxes for the wealthy while spreading the tax base;
–opening up markets to trade and limiting protectionism;
—privatizing state-run businesses;
–encouraging de-regulation;
–holding private property as sacrosanct.
–representing the aims and views of the World bank coupled with the IMF/ECM
