Another day, another round of bad news out of the eurozone, as the European financial crisis continues to escalate.
For once, however, the Europeans were matched for paralysis and futile gestures by the Americans. This morning, the chairs of the congressional “supercommittee”, charged after the debt ceiling stand-off earlier this year with finding bipartisan agreement on ways to curb the US deficit, admitted failure declaring “we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline”.
The statement bordered on surreal: “… as we approach the uniquely American holiday of Thanksgiving, we want to express our appreciation to every member of this committee, each of whom came into the process committed to achieving a solution that has eluded many groups before us. Most importantly, we want to thank the American people for sharing thoughts and ideas and for providing support and goodwill as we worked to accomplish this difficult task.”
They hoped Congress could “build on” the committee’s work. Perhaps they could start by building a spaceship back to planet Earth.
In the absence of agreed cuts, a schedule of across-the-board expenditure reductions will kick in from 2013. But Congressmen and women are already talking about stopping the automatic cuts, particular on defence spending. Plus ça change. In response to the committee statement, President Obama said he’d veto any efforts to stop the automatic cuts, much as he’d prefer “a scalpel, not with a hatchet”.
It’s hard to know where to start with the latest news from Europe. Ratings agency Moody’s — the world is in a fine mess when the wholly discredited ratings agencies possess more authority and insight than governments — suggested that France faced rising interest on its debt and slowing growth, a combination that might endanger its AAA credit rating. The Bundesbank lowered its forecasts to German growth to a negligible 0.5%. What was a crisis in the “south” in the Eurozone is spreading northwards. The UK government virtually conceded its plans to move out of deficit by 2014-15 would not be met, and Chancellor George Osborne looks set to join the Bank of England in significantly lowering UK growth forecasts.
The election of a conservative government in Spain — with forecasts of the inevitable round of austerity measures — has done little to curb the growth in Spanish bond yields. The World Trade Organisation forecast developed country export growth would fall sharply. Oh, and the Hungarians asked for EU and IMF help.
Oddly enough, financial markets did not have a good day.
The common themes on both sides of the Atlantic is politicians unable or unwilling to address either the demands of markets for certainty and control of the debt crisis, or of the needs of their constituents for jobs. The European countries that have pulled on the hairshirt as demanded by the the EU and the Germans face savage recessions that, as Moody’s points out in relation to France, place in doubt exactly the goal of austerity.
Many of these governments already face low levels of public support — not partisan support, but support for the fundamental political systems in which they operate. Their incapacity to respond effectively either to the financial crisis or the impact on employment of collapsing economic growth will only further undermine their legitimacy. So too will the plain impatience of the EU and markets for democratic niceties.
While George Papandreou’s call for a referendum was more a half-smart political tactic than a sudden discovery of the value of democracy, the EU’s angry dismissal of it, the installation of unelected technocrats in Greece and Italy, and the impatience of markets for Spain’s constitutional requirements to be overturned so the new government can immediately embark on reforms all reveal a logic that inevitably concludes with the suggestion that a “strong hand” is needed for the duration of the crisis.
Eurosceptics, of course, are like pigs in mud with this. The UK Telegraph’s (excellent) coverage of the crisis revels in each new revelation of euro-disdain for the forms of democractic process.
What began as a crisis in the banking system and then became a crisis of sovereign debt may yet become a full-blown crisis of legitimacy for democratic governments.
It must be Julia Gillard’s fault. :^)
Seriously though, it’s lucky they had the automatic cuts to fall back on. Assuming Obama doesn’t cave in to Congress demands.
The best form of government is a benovelent dictator. Unfortunately the wisdom of Solomon does not come easily.
Governments in waiting care nothing for the good of the economy – they want govt at any cost. Opposing everything and talking the economy down is the path towards power.
The “crisis in the banking system” is still very much present and has only generated a “crisis of sovereign debt” because governments decided to take criminal loans onto their books. Most Western governments are now totally dominated by pro-banking politicians (except in Greece and Ireland, of course, where the Goldman Sachs-trained Banksters (please stop calling them “technocrats”) are actually already in charge). Nothing wrong with being pro-banking except when the banks have become completely corrupt and effectively “own” the whole US Government.
What is needed is exactly the MASSIVE failure of the criminal banks that they are fighting so hard to prevent. A sweeping of the decks including any bank-serving pollies and then a painful rebuilding. Re-establishment of all the banking legislation brought in after the Depression and sneakily repealed over the last decade. When bank charges account for over 40% of all business expenditure, it’s time to take the banks down and start again. It’s telling that outright fraud is being proven time and again and yet the banks are getting away with it. The only guy in jail is Bernie Madoff – and his mistake was to steal from the rich!
I am becoming increasingly depressed at the combined duplicity of bankers and politicians who jointly have allowed their economies to be hollowed out beyond the point of no return. It’s a bit like going to do some home maintenance to find that the woodwork that you are going to paint over is rotten to the core.
I suspect we have already gone beyond the tipping point whereby duplicitous politicians and bankers have borrowed so much from the future that it cannot be repaid, and that the eventual outcome will be wholesale repudiation of borrowings through either massive inflation or outright default, and the savings of a generation will be destroyed, on a similar basis to the Weimar Republic after 1919.
Europe and the US have “maxed out their credit card debt” to the point when they can’t effectively repay the amount has been borrowed. The austerity proposals to in Greece and Italy appear to be politically and economically unsustainable, and greedy and grubby politicians are competing to see who can be on top of the dung heap rather than seriously trying to address the issues.
The failure of US Democrats and Republicans to even partly address their toxic deficit issues is an indication that politicians care less about outcomes and more about their own self-interested power interests. By all means make sure there is ice in the gin and tonic and the orchestra plays on while the “Titanic” is sinking
What is at stake here is the very fabric of civil society. The proposition that money lent will be repaid is now under savage attack by greedy carpetbaggers who have sold successive lies to their respective constituencies allowing whole nations to live beyond their means for decades. Unfortunately we are now witnessing the end of the musical chairs game and savage pain and loss appears to be inevitable.
Here in Australia we are witnessing the same political carpetbaggers spending billions of dollars funded by borrowing and the “world’s greatest treasurer” cannot tell us when we are even going to stop going further into debt and even commence refunding the nearly $200 billion that he and Gillard have borrowed.
If we have a global recession, this amount will become a permanent millstone around the neck of the Australian taxpayer dragging us in the same direction as the US and Europe.
Looks like this para also needs a space ship to planet earth…
“But Congressmen and women are already talking about stopping the automatic cuts, particular on defence spending. Plus ca change. In response to the committee statement, President Obama said he’d veto any efforts to stop the automatic cuts, much as he’d prefer “a scalpel, not with a hatchet”.“