Fiscal defishits

Posted: March 8, 2010 in Humour, Uncategorized
Tags:

Keynes must be sadistically smirking in his grave. With monetary policy hitting the dead end, economies around the globe turn to fiscal policy, attempting to spend their way out of the recession. Even as the spending works its way through the system, a future of collective austerity awaits economies around the globe. The belt tightening will be a painful affair…more so for some than others.

Here’s the lineup (budget balance as a % of GDP): Greece  = -12.7% (2009), Ireland = -11.1% (2010e), Spain = -11% (2010e), UK = -10.9% (2010e), Japan = -8.8% (2010e), Portugal = -8.3% (2009), US = -8.1% (2010e) . (Estimates for 2010 are IMF projections. Greece and Portugal figures pertain to last year as next year’s projections are well…)

As Greece and Portugal scramble to hit the 3% fiscal deficit EU rule, troubles seem to be escalating. Portugal plans to cut fiscal deficit to 2.8% of GDP by 2013 through a slew of measures that entail increasing taxes, possibly taxing stock market gains and massive spending cuts. Wage cuts, while badly needed, are tremendously sticky on the way down. Unions are already threatening strikes should the government prevent protection of real wages. Greece is already witnessed street rioting.

Both those ailing economies badly need wage cuts to regain competitiveness on the global markets (internal devaluation) or face a currency devaluation. The latter, which essentially is a break from the EU is nearly impossible at the moment. Meanwhile, public opinion in Germany is in favour of throwing Greece out of the EU if it fails to tackle its problems on its own. Will the European Monetary Fund help?

It amazes me how unions refuse to share collective pain. Irrespective of the state of the economy, they want wages to beat inflation. The demands glaringly showcase a tremendous sense of divergence from economic reality. Now I might sound like a brazen capitalist, but I’m not. I just believe in equitable sharing of pain. But then what about the banks and investment bankers? And I would have to sadly nod in agreement…


Advertisements

Reach out

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s