If this holds, as previously discussed, some growth can return, albeit from currently depressed levels, as the austerity pushed down GDP and pushed up the deficit to the point where the deficit becomes sufficiently large to support things.
Monti Rules Out More Austerity Measures for Italy
June 13 (Bloomberg) — Italian Prime Minister Mario Monti’s government is not planning to adopt further austerity measures going forward, Pierferdinando Casini, the leader of the Union of Centrists party, told reporters in Rome today.
Casini, together with Pier Luigi Bersani and Angelino Alfano, the leaders of the Democratic Party and of the People of Liberty party respectively, met with Monti last night to discuss the European economic crisis. The three leaders pledged to back the government’s reforms that are now in parliament, according to a statement from Monti’s office.
“Nor the parties, nor the government are willing to plan a further budget adjustment although the situation has become very negative” also in light of the earthquake, which “will be a blow for public finances,” Casini said.
All I hear from Italians is that Monti is not going to last long. He promised to cut on high salaries in the public sector (i believe among the highest in the EU), but instead has cut pensioners.
In the meantime shrinking economy and massive tax evasion. Doesn’t look good.
Warren, I keep hearing you focus on the need for bigger deficits in Europe and I do understand the logic – the need for governments to offset the private sector’s desire to run surpluses.
But the problem I have is how the Italians for example can possibly run a sufficiently large deficit and get away with it in the Euro – they already have debt of 120% of their GDP in a currency they don’t control and thus can run out of. Surely the markets will fret over their solvency should they keep adding materially to that debt, even if their GDP is growing.
The solvency risk must be addressed – and I just don’t see how that will. And without that being addressed, higher deficits are just going to lead to more concerns of default…
agreed. been making that point.
but also making the point that more recently the solvency risk has been fading as evidenced by the banking system not having any liquidity crisis over the last few weeks even with the massive deposit losses, indicating the ECB isn’t going to fail any banks on liquidity.
And the member nations have also been able to fund themselves at sort of reasonable rates in the shorter maturities, indicating to me they will muddle through as well. And just tonite Germany said it’s open to some form of cooperative funding.
So I see solvency being addressed, but not the need for larger deficits
Dick Cheney was both right and wrong when he said “deficits don’t matter.”
When most or all trade and exchange is mediated by currency, then not having a sufficient quantity of currency available to mediate the desired trade and exchange inhibits the behavior and that does matter. However, now that our currencies are made out of paper and electronic digits, such a deficit can easily be corrected by just making more money. Then it doesn’t matter.
On the other hand, when the quantity of currency is artificially limited to insure that some people have much and other people have none, then that’s an example of a tool, useful for measuring a function, being used (abused, if you will) to coerce behavior (more labor for less sustenance) and induce deprivation. And that matters in the sense of being a moral wrong.
The whole notion that when there’s an input and an output the two should be equal at a point in time is silly. As my account friend explained it, double entry book keeping was invented on the premise that if things were counted twice, the sums would likely be more accurate. That’s the only good we get from “balanced accounts.” They tell us nothing about the value of what’s being counted. Which is one reason why our economies can appear to be increasing or decreasing without anyone being better or worse off.
The numbers just don’t tell the whole story. Indeed, the “problem” in Italy and Greece seems to be, according to reports about their “underground economies,” that 25% and 40% of their trade and exchange isn’t making it into the accounts–i.e. the accounts are deficient and that matters to the people who keep them.
I think we can be fairly certain that deficits matter to people who keep records and are tasked with balancing the accounts. They also matter to people whose income is cut based on the argument that there’s not enough money to go around, especially now that everyone knows Wall Street “lost” up to $40 trillion and got bailed out. Obviously, there’s plenty of money when it’s wanted by the right people.
I suspect ordinary folk look upon converting to the Euro as akin to adopting Roman script and Arabic numerals. Lira and pesos and marks and francs are all equally worthless, but the conversion, like between inches and centimeters, is a nuisance they’d just as soon avoid. So, Greeks opted for the Euro in yesterday’s election.
How long will it take for it to sink in that controlling the currency is a purely ministerial function?
pretty much everything about the dollar is necessarily ‘artificial’
it’s a ‘pure’ tool