The saga which has been continuing recently on the political
stage seems not to have an end in sight. It is marred by statistics so far
removed from everyday life that the majority of ordinary people can barely
comprehend what on Earth the scale of the European debt problem actually is.
The finest academics in the world, past and present, are
split on how best to solve economic problems such as those faced by Europe
today. Essentially, there are two main stances: smaller government with less
public spending, the chosen method of our own Treasury, or a splurge in
government expenditure in this time of hardship, the favoured theory of the
late, great, John Maynard Keynes.
It can only be called naïve to be so firmly attached to one
side of the spectrum that you refuse to look at the merits of the other.
Indeed, it would be fantastic if the Greek government could tomorrow stimulate
their economy with expansionary fiscal policy (jargon for spending more with
borrowed money.) Unfortunately however, in a rather short-sighted manner,
that’s what they’ve been doing for the last however- many- years before the
crash of 2008; a time when they didn’t particularly need to, but wanted to,
because the growth built on cheaply borrowed money seemed easy and attractive.
This is a problem with the modern state in general: the reason why countries
counter-intuitively run deficits even in relatively stable periods, and it is
one which is not easy to find a comfortable end to. Namely, I’m referring to
the fact that when a treasury shouldn’t borrow, at times of economic
prosperity, it is extremely tempting to do so. There is no immediate peril of a
high debt to GDP ratio when GDP growth is looking promising; it’s a statistical
smokescreen. However, the ‘boom and bust’ comes into play and the times of
prosperity are always followed by a period of recession, and if a treasury has
racked up a giant debt in the good times, then there’s less room to borrow when
the economy could use some stimulus.
Currently, not only in Greece, but also in crisis states
such as Portugal and Ireland, national governments have become the puppets of
the EU’s grand scheme to hold together the Euro with borrowed glue. The problem
is that the people in these countries are just like you and me: they hold the
government accountable (whether this is justified or not) for the recessions
they are facing, and begin to favour politicians who would abandon austerity
and instead grant their hard-pressed people some relief.
France’s debt is around 87% of GDP and would only rise
higher, at least in the short term if the country abandons anything which can
remotely be called austerity. With financial markets extremely concerned about
Euro-based countries being unreliable debtors, this could threaten a situation
where France is added to the list of those struggling to borrow money. When
Europe’s second largest economy becomes blacklisted, there really is no way in
which the Euro, abandoned by the French as too inhibitive and undervalued,
could survive, even if German politicians wanted it to.
In this country we have become extremely used to living
beyond our means. It is hard, politically, to wean the people off this
attachment to paying less in taxes than they receive back in services, but it
is something which must be done. The UK must accept growth figures around the
zero mark for the foreseeable future whilst the budget is balanced. (Yes,
budgets can be balanced and even reduced without high growth, despite what the
Labour party proclaims). Short term zero growth and austerity is an evil, but
so is fake growth founded on party politics and debt which eventually will
collapse around us. In my opinion, the former is the lesser of the two evils.
China’s growth is not founded upon public spending, and neither should ours be.
The sooner those supporters of benefits for all see that, the sooner we can get
out of this very modern problem of risking state bankruptcy, together.
In the grand scheme of things, if this occurs in the
up-and-coming Greek elections, it is quickening the inevitable demise of the
tiny country’s fragile, distorted economy. Greece will default as there is, of
course, no desire to carry on repaying what they owe. The only relevant
question is whether that happens this year- at the cost of €240 billion to the
EU in write-offs of their bailouts; or in ten years’ time- at an unknown cost,
after years of stagnation. The Euro will probably survive this event, with the
Greek exit having a noticeable but not catastrophic effect on British, French
and German economic statistics. However, France’s recent election of Francois
Hollande and his socialist policies could be a precursor to a situation which
would plunge Europe back into depression.
However fortunate Britain may feel itself to be, sitting on
the side-lines of this European mess, there is no avoiding the fact that this
would horrifically affect our export market. Deep recession in the UK may
follow and the government would be unable to cut the deficit without even
further spending cuts and tax rises. Such a situation would likely prompt the people
of this country to elect a Labour government promising to do exactly what
financial markets don’t want us to do: borrow more in order to plicate the
people.
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