How much sicker does the patient have to get before the doctors stop prescribing poison?
Here are some selected news stories out of Europe:
New York Times: "Unemployment in Euro Zone Reaches a Record High" WSJ: "Sixth Quarter of Contraction Looms for Euro Zone" Der Spiegel: "Shredded Social Safety Net: European Austerity Costing Lives" WSJ: "Spain Says Budget Gap Is Wider Than Reported" New York Times: "European Car Sales Point to Continuing Slump" WSJ: "Italy Unable to Form Government" New York Times: "Debt Rising in Europe"
Paul Krugman's right: This isn't a recession. It's Europe's Second Depression, and it's on track to last even longer than the first one. Austerity economics has been imposed across most of the Eurozone, to a greater or lesser degree, with devastating economic results: This is Europe's sixth consecutive quarter of economic contraction.
Unemployment in the euro zone rose to a new high in November, according to data released Tuesday that also showed that the troubles in the 17-nation currency bloc were straining its strongest member, Germany.
The euro zone jobless rate rose to 11.8 percent in November from 11.7 percent in October, according to Eurostat, the statistical agency of theEuropean Union.
Eurostat estimated that 18.8 million people in the euro zone were unemployed in November, two million more than a year earlier.Germany has provided momentum to the European economy over the past three years, as strong exports protected the country from the crisis.But on Tuesday, the Federal Statistics Office in Berlin said that German exports declined 3.4 percent while imports slid 3.7 percent in November from a month earlier. The weakness narrowed Germany’s trade surplus to €14.6 billion, or $19 billion.German factory orders also fell in November amid weak demand from outside the euro area, the Economy Ministry said Tuesday. Orders, adjusted for seasonal swings and inflation, slid 1.8 percent from October, when they jumped 3.8 percent.
The International Monetary Fund is revising its metrics on how fast governments should cut their budgets, with the IMF’s top economist making the case that Europe’s fiscal diets were too severe.In a new paper published Thursday, IMF Economic Counsellor Olivier Blanchardand research-department economist Daniel Leigh show the IMF recommended slashing budgets too fast early in the euro crisis, starving many economies of much-needed growth.
In “Growth Forecast Errors and Fiscal Multipliers,” Messrs. Blanchard and Leigh calculate IMF and European economists underestimated the euro-for-euro effect of cutting government budgets. While economists expected that cutting a euro from the budget would cost around 50 cents in lost growth, the actual impact was more like 1.50 per euro.
Republicans like Goober Graham repeatedly fret over the US becoming Greece and call for raising retirement ages and slashed benefits for our entitlements, but the policies they are trying to force us into will actually pave the way to a Greek-like state of mind.
In Greece, which has implemented draconian austerity measures at the request of the IMF, the European Commission and the European Central Bank in order to receive bailout funding, the results are seen on the streets where a middle class has plummeted into poverty. One out of three Greeks now lives in poverty and average salaries have been slashed to just several hundred net euros a month. Homelessness, which was rarely seen in that country, is now endemic in certain parts of Athens. The unemployment rate has reached a record 26 percent, with more than 50 percent of Greece's youth out of a job.
Greece received billions of euros in bailout funds, but a large part of why austerity didn't work in Greece is because it wasn't offset by any growth strategy. In a shocking example of how twisted reality became, Greece's bailout funds at one time were simply wired into an escrow account that the government couldn't touch and then wired back for debt service to European banks just days later (read the NYT report here). In other words, not only were there painful cuts, but any money coming into the country was spent almost exclusively on debt reduction rather than on stimulating the economy.
I’m not going to raise the debt ceiling unless we get serious about keeping the country from becoming Greece, saving Social Security and Medicare [sic]. So here’s what i would like: meaningful entitlement reform — not to turn Social Security into private accounts, not to take a voucher approach to Medicare — but,adjust the age for Social Security, CPI changes and means testing and look beyond the ten-year window. I cannot in good conscience raise the debt ceiling without addressing the long term debt problems of this country and I will not.
That is what has been happening with a vengeance in Greece, where fund forecasters, as part of the country’s first bailout program in 2010, predicted that the nation could cut deeply into government spending and pretty quickly bounce back to economic growth and rising employment.Two years later, the Greek economy is still shrinking and unemployment is at 25 percent.Of course no two circumstances are alike. Shut out of international bond markets, Greece had little choice but to begin bringing its public finances into line or face a catastrophic default. Financing wasn’t available to sustain prior spending levels. For an economy that has been reeling for several years, however, a billion or two in extra government programs or investment could have kept a few small businesses open and kept a few more families employed and spending.
By Wednesday (a week later), the protests had spread across Europe into Italy, Portugal and Madrid, Spain where "hundreds of thousands" took to the streets protesting further budget cuts and tax increases that have already created rampant unemployment, crippling the economies of six European nations.
"Austerity" is destroying the European economy (and bringing down world markets with it), but wealthier nations like Germany & the UK (which grew their way out of the Recession by investing in green technology and infrastructure [pdf]), which are loaning these countries money through the IMF (International Monetary Fund), are more concerned with being paid back than aiding the economic recovery of those nations, and like the GOP in this country, they are wedded to the idea that "budget cuts" and "reduced spending" are the path to prosperity despite all evidence to the contrary. As the video notes, unemployment continues to rise in Spain, now approaching a stomach-churning 26%, while Portugal's "debt" is now 107% of the nations' GDP. Greece has seen its economy contract by 23% in just the past five years. Not exactly a recipe for growth that would make any lender comfortable with ever being paid back.
You may have noticed that the Stock Market took a nasty dive (313 points) the day after President Obama's reelection on November 6th and has been tumbling ever since. So naturally, some Republicans were quick to blame President Obama's reelection and the looming "fiscal cliff" for the sudden plunge on Wall Street. It's nonsense of course, but it makes the Right feel better to think Wall Street is terrified of a second Obama term.
Because if there's one thing Wall Street hates, it's "uncertainty"... and who knows what this "Obama" guy will be like as President? Am I right?
The turning point came in September when Mr. Passos Coelho offered a plan to redistribute social security funds by cutting employers’ social security taxes while significantly raising those of employees. Although the measure was meant to lower labor costs, the outcry from workers was so ferocious that he was soon forced to withdraw it.
But the damage was already done. The misstep is now credited with having rattled the social and political cohesion that had underpinned Portugal’s painful but steady progress.
The withdrawal of the tax plan left the Portuguese, who had once grudgingly accepted the pain of austerity, with a new sense of empowerment, Mr. Magalhães said. “The fact that the government backed down and the fact that no catastrophe or international censure came out of it suddenly shows that there are no inevitabilities,” he said.
Pay attention, will you, people? We may need this sooner than you think.
[...] Mr. Vieira Lopes suggested that the fundamental problem was that the bailout assistance program from Portugal’s international lenders did not take sufficiently into account the specifics of the nation.
“The austerity model has been applied rather mechanically,” he said. “This is not a country full of big companies that can adjust to a decline in their domestic market, but rather small and medium-sized companies whose only option is then to close down.”
Many stores in downtown Lisbon are now either closed or advertising huge discounts, as citizens struggle in a deepening recession that has pushed unemployment to a record 15 percent. A sharp rise in the sales tax has decimated the restaurant sector. One measure of the hardship has been the sudden proliferation of the “marmita,” or lunch box, used by employees to take their home cooking to work. Even the investment banking division of Banco Espirito Santo, one of Portugal’s largest financial institutions, recently refitted a room with tables, refrigerators and microwaves to accommodate the trend.
As consumer spending is declining, so too are tax revenues. As part of its 2012 budget, the government anticipated that sales taxes would produce revenues 11.6 percent higher than in 2011. Instead, revenues were down 2.2 percent in the first eight months of this year, as the tax increases suffocate the economy.
Imagine. Apparently leaving people without any money to spend depresses tax revenues and contracts the economy! Who would have guessed?
Many Americans have no idea how to understand Europe's financial problems because economics is not an easy topic to grasp while they are trying to sort out their own lives. We do hear from time to time how we're linked in a global financial marketplace so what happens in France or Japan effects us too. What Americans have seen on TV are people rioting in the streets over government imposed "austerity" measures that hurt them. Want to be able to explain it to your friends and family members? Just use this article Digby found which puts into terms that are easy to understand: How To Turn A Continent into A Subprime CDO.
Why the push to emulate Europe suddenly from the right? Don't you remember when right wing pundits and politicians used Europe as their punching bag, especially France during the Bush years? Anyway Digby found an article that explains what's been happening to the Eurozone in a very easy way to understand.
If you are having trouble unraveling the Eurozone crisis read this. It puts it into a perspective we here in the US can easily understand:
The Eurozone today resembles a 2008 vintage subprime CDO. The Greek, Irish and Portuguese periphery is the riskiest junior tranche, the Italians and the Spanish are, appropriately, the mezzanine tranche, with France and Germany forming the senior tranche. And just like 2007-8, all the liquidity is drying up, as seen in the need for the banks from these sates to keep going to the ECB’s discount window.