Posted on 02/03/2008 6:25:21 PM PST by TigerLikesRooster
Europe lacks scope to revive economy
Rosemary Righter: Economic view
When politicians start trotting out assurances that “the economic fundamentals are sound”, start to worry. If they add that “there is no need to rush for the lifeboats”, a quick check on the location of the lifebelts is in order - particularly if you entertain doubts about the crew's storm-management record. Back in 1997, my aircraft landed in Seoul at the very moment when the won went into freefall. Ministers and officials just kept parroting “sound fundamentals, sound fundamentals” right up to the moment when South Korea jumped into the IMF lifeboat.
Gordon Brown presented last week's “credit crunch” mini-summit with his fellow European G8 leaders - Angela Merkel, Nicolas Sarkozy and the just-defenestrated Romano Prodi - as a lofty exercise in global leadership: “We've been discussing how to maintain economic stability ... We believe we can persuade the whole international community of the need for the reforms we propose.” But it was the European Union's who gave the game away. “We can be confident. The fundamentals of the EU economy are sound ... Nobody is speaking about a recession in Europe.” The real point of this get-together was blame-shifting: global factors, not structural domestic weaknesses, were the problem; and Europe's leaders were hard at work heading off the risks of contagion.
This self-conscious parade of confidence at Downing Street was the reverse of reassuring - particularly when, on the other side of the Atlantic, the Federal Reserve was bluntly acknowledging the “downside risks” that had prompted its two-tier interest rate cuts. As politicians will, the famous five spent most of their time together happily designing bolts for the stable door - stronger regulatory frameworks, closer co-ordination, greater transparency in financial markets in general and credit ratings agencies in particular (to be secured, this being a European gathering, “by regulatory action if progress is not made”). Finally and inevitably, they issued a call for reform of “the global financial architecture”.
This is a particular buzzy bee in the Brown bonnet. His big idea is to turn the World Bank into an environmental lending agency (Prime Minister, did no one tell you the Bank has been in the environmental lending game for decades?) and to revamp the IMF as a global financial early warning system.
Talk about generals fighting the last war. Frameworks and mechanisms are loved by Mr Brown much as Lego is loved by small boys, but national responsibility for supervising large and complex economies cannot simply be sloughed off on the IMF. Yes, there is a need for greater transparency, to ensure that markets are better informed, and yes, regulators need to concert, as they already do at the Financial Stability Forum in Basel. But much of that “global management” rhetoric is posturing. When markets go into overdrive, they find ways round the controls set up in the wake of previous financial crises. The sub-prime crash and its accompanying debris came about because money was cheap, risk had become badly mispriced and bankers' incentives were skewed. Of this, most regulatory authorities were aware. So long as the going was good, you could have had the best global early warning system imaginable and it would not have worked because no one was listening. Call it the Soci鴩 G鮩rale syndrome. And why would one expect the IMF to pick up the Northern Rock danger signals that the Treasury and the Financial Services Authority both missed?
It is much more fun saving the world than fixing the plumbing at home. But the plumbing needs attention. On display, yet again, is the contrast between America's rapid financial reflexes and the semi-paralysis inflicted on most of Europe's governments by the surrender of their powers to set national interest rates and the scant fiscal leeway available to them. Despite the gloomy January jobs data in the US, the chances are that America's economic retrenchment will be painful but shorter than seemed likely before the Fed acted and Congress rushed to supplement rate cuts with a hefty fiscal stimulus. There is little, by contrast, that most European governments can do to reverse the steep slides in consumer and business confidence that Eurostat is already recording.
With headline eurozone inflation hitting 3.2 per cent in January, the highest for a decade, and with strong upward pressures on wages in Germany and France, little mercy can be expected from the European Central Bank, while public debt and deficits are already too high in the major economies to allow for significant pump-priming. So far, so familiar. But this time there is no room for British schadenfreude, because the British economy is also running out of road.
As Chancellor, Mr Brown's favourite boast was “no more boom and bust”. It will haunt him from now on. “Prudent” fiscal policy, which he claimed almost to have invented, is about saving in sunny seasons against a rainy day. It is starting to rain hard. And Mr Brown has not been saving. The public finances are as sick as a soaked parrot. Alistair Darling has medicine ready, but it risks choking the patient.
Over the next five years, public spending is set to fall to an eight-year low as a proportion of national income, while taxes rise to a 24-year high. The Treasury's goal is to move current spending into the black in 2009-10, meeting Mr Brown's famous but shopsoiled golden rule about balancing current budgets over the economic cycle; and to keep public debt below 40 per cent of GDP, the other Brown golden rule. No less than 48 per cent of the “proceeds of growth” will pour into government coffers. But this assumes that the “proceeds of growth” will hold up, as taxes rise and public spending falls against a background of sagging house prices and weaker tax revenues from the City. The Institute for Fiscal Studies, which bases its estimates on the Treasury's own economic models, pointed out last week how unlikely that is. Its conclusion: to meet Treasury targets, Alistair Darling would need to raise taxes in next month's Budget by £8billion. For political reasons, he will not do it, and for economic reasons, he should not. But not even Gordon Brown will dare to repeat for much longer that Britain's economic fundamentals are sound.
Ping!
When can I expect the Euro to plunge?
The Europeen Union is a failure. I’ve been yapping to everyone that the NAU will be just as big a failure. It fails because you mix those who care about their country with those who don’t. Those that come here to sponge off us - legal and illegal.
European economy revived by carbon credits - lol
It does provide a cure....albeit a fatal cure......
It’s all on track:
Analysis: French study says Europe fading
Published 5/14/2003
WASHINGTON, May 14 (UPI) — Europe is predicted to become a second-ranking economic force over the next 50 years, its share of world output almost halving from its current 22-percent share to 12 percent, a top French think tank reported Wednesday.
Over the same period, the United States is expected almost to retain its 25-percent share, which will by 2050 be matched or even outpaced by China as the world’s dominant economy.
“The enlargement of the European Union will not be sufficient to guarantee parity with the United States,” says the report from the prestigious French Institute of International Relations. “The EU will weigh less heavily on the process of globalization and a slow but inexorable movement onto history’s ‘exit ramp’ can be foreseen.”
It is a kind of psychological defense mechanism.
At the core, any currency’s value is a reflection of the underlying economy. The dollar is hurt by govt overspending, but as a percent of GDP, it is sustainable. We are also (barring a Hillary or McCain victory) mostly a true market economy. In other words, the dollar and the US will survive.
The Euro and Europe on the other hand are a different story. Systemic unemployment that we would consider to be a sign of a recession or even light depression, socialist welfare states, rabidly anti-business socialism, Islamification - the list goes on and on. Europe is failing, and as goes Europe, so will the Euro. Maybe the Euro has an upside in the short term, but it will fail in thing long term.
eastern europe knows tyranny and they will show the rest of europe the way.
Sounds like you've been drinking too much Austrian beer (lately),...e.g. such beer with lables on it as Ludwig Von Mises, Hayek, and Schumpter. That kind of beer has a nasty taste to it in the US.:-)/s
Where have we heard that before?
The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosophers' stone to make it last. Ludwig von Mises, Human Action.
Of course Mises is not responsible for the Ludwig von Mises Institute.
The temptation to gloat is strong, but we better hope this doesn't happen. The European block is still "our" civilization. It's got to be on our side against China and an increasingly hostile Russia. And if it goes Islamic, well that's a catastrophe.
That's the taste of reality.
I know. :-)
The influx of illegal immigrants into the US and Europe has created millions of new jobs, especially of those in the health care industry, right? The demand for increased free health coverage has caused 70 new hospitals to be built along the border towns of the US, right? Remaining facilities have begun multi-year $billion expansions because of the increased economic activity in those regions, right?
Government always has the best interests of its citizens at heart, right?
Basic human nature (greed, arrogance, lust for power, and deceit) never influences government officials or outside interested parties (corporations) as to always relieve the tax burdens and governmental control upon society, right?
So, the EU and the NAU are without a doubt, the best thing since sliced bread because uneducated, unskilled, un-inoculated immigrants bring happy, happy, joy, joy individuals who want to assimilate into the existing society, right?
Pigs fly because the governments said so.
They have played a dangerous game, keeping their baseline interest rates higher than the US to inflate their currency and keep investment flowing in, but the bill will be coming due as their economy bogs down and the US chugs along during the coming months.
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