Roubini Tells Europe to Stop 'the Savings Madness'

CNBC ^ | 6/12/2012 | Lisa Rowland and Antonia Oprita

[bruinbirdman]

Governments in Europe should lower taxes and increase salaries to boost growth rather than insisting on austerity and continued saving, famous economist Nouriel Roubini told a German newspaper in an interview on Tuesday.

Roubini also said the German government should give its citizens incentives to go on holiday in countries in the south of Europe that were affected by the debt crisis to help those states recover.

Some leaders in major European countries have already shifted their rhetoric from austerity to growth, as tax increases and cuts in government spending have exacerbated the economic downturn, causing deep recessions in some euro zone countries. But Germany still insists on austerity as a way to bring budgets under control.

"The savings madness must be stopped. Governments must lower taxes and increase wages. Europe needs growth," Roubini told popular newspaper Bild.

"The German government should give every German household a 1000 euro ($1,250) travel voucher. However, it should only be used for holidays in crisis countries. That will help boost growth there. In addition, everyone who buys a holiday home in a southern European state should get a tax bonus,” he added.

Pulling the plug on funding Greece, which has already been bailed out twice, would lead to the collapse of the single currency, Roubini

[Pearls Before Swine]

This sounds whacky, even though Roubini has been right often.

But, if you consider that a bailout through the EBC or the EFSF goes directly to the indebted country without benefitting any Germans, it makes a little more sense. This bails them out with vouchers that give the German citizens a bit of tourist joy. Also, the money is routed through the “industries” of southern Europe which are most competitive—namely tourism.

Unfortunately, I doubt that you could transfer enough money to make a difference in this manner.

[pepsionice]

Having lived in Germany for almost twenty years of my life....and been to both Greece and Cyprus...I can offer some observations here.

First, currently, the Greeks are already offering some of the best deals possible of the past twenty years. You can go over for one week (hotel, air, and buffet meals included) for 459 Euro ($600 roughly). Toss on another $200 for a second week. That’s a two hour flight from central Germany to Greece....all part of a package deal. I don’t think you really need to toss more free cash into the deal....the Greeks are already making it a pretty good deal for a two-week trip.

Second, the relationship right now in Greece with Germans....isn’t exactly great. Most Germans are very hesitant over making a trip to Greece...in fear of a confrontation. So money isn’t going to comfort them.

Third, and final....let’s say this works....but for other reasons possibly. Then would you come up next spring and offer another enticement deal to get folks to go off to Spain? Then in 2014....maybe Portugal? Then in 2015....maybe Italy? The German method of fixing something just turns into free vacation deals? A German hearing this deal....would start laughing, and then demand the political figure be fired.

[Pearls Before Swine]

Oops, of course in post 2 I meant ECB, not “EBC”.

[Olog-hai]

Lower taxes in Europe? Haha. The social market economy doesn’t work that way. That's what happens when you actually write a market philosophy into a pan-European constitution (Article 3 TEU Section 3, the Treaty of Lisbon):

The (European) Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance. …

Sound like the USSR much? Lots of parallel goals mentioned in the USSR’s constitution . . .

[Olog-hai]

They are not bailouts. They are loans.

[Olog-hai]

When Germany gives up the social market economy and their politicians stop talking trash about the “Anglo-Saxon economic model” (which our politicians have abandoned, frankly), I will start taking them seriously. While they hold on to it and the EU as their proxy imposes that economic model on all of the EU members, their government will look like manipulators to me.

[Pearls Before Swine]

They are not bailouts. They are loans.

No "/S"?

On the off chance you are serious, look at Spanish sovereign bonds, which are clearly loans to the Spanish government. If the bank bailout for Spain goes through, the new loans will be given seniority over the old government bonds--which stretches the definition of loan priority. If you get pushed far enough down the priority chain, the old loans become worthless bailout gifts.

[USFRIENDINVICTORIA]

“Some leaders in major European countries have already shifted their rhetoric from austerity to growth, ....”

They may have shifted their *rhetoric* from austerity to growth — but, that's not the same as introducing measures that actually lead to growth.

The ersatz “Keynesianism”, which mainly involves more government spending, was never meant to be a prescription for growth. It was supposed to be a way to stabilize an economy — to lop the peak off bubbles, and fill in the troughs of recessions.

The only *growth* policy that the EU has implemented is the lowering of trade barriers. The EU started out as a free(er) trade zone — and free trade is a proven growth strategy.

Lower taxes are also a proven growth strategy; and Roubini is right to recommend them. However, does anyone believe that lower taxes are what the socialist governments of Europe have in mind, when their rhetoric turns to “growth”?

Another proven growth strategy is liberalization (in the original meaning of the word) of labour markets. Meanwhile, France and others are increasing the regulation of labour markets.

In the EU, growth policies are more honoured in the breach, than in the observance.

[Olog-hai]

No, no </s> and I daresay the EU does not regard things in that vein . . . the EU regards them as loans to be paid back, and the terms for repayment are what squeezes the economies of the countries that receive them. The ultimate term of these loans is the recipients giving up sovereignty entirely to a totalitarian political/economic union—that’s all over the news and in the rhetoric of the politicians.

[Olog-hai]

If “free trade” is a “proven growth strategy”, then how come the trade deficits for the USA are so colossal?

[Pearls Before Swine]

The ultimate term of these loans is the recipients giving up sovereignty entirely to a totalitarian political/economic union

True, many in Brussels are pushing for that. I doubt it will ever happen. Can you see the German tax collectors marching into Italy, France, or Spain to collect moneys due? Or, for the populations of the Mediterranean counries sitting still forever for declining wages and living standards? I can't.

[RBStealth]

kudos! right on!

[Olog-hai]

I don’t see how anyone could doubt it could happen. The governments of all the countries (they resisted these loans at first) fell, and were replaced with governments not only receptive to the loans but also receptive to the concept of giving up sovereignty to the central government, as Mariano Rajoy recently expressed openly. These countries have all accepted the terms of such an oppressive document as the Treaty of Lisbon (see post #5), to varying degrees (and those that did not accept them in their entirety are being pressured to do so, via mostly economic means but some political means). Once the big term regarding giving up sovereignty is met, the economic squeeze will most likely be eased.

Remember, the euro currency itself was designed to be the trigger for what the EU elites called a beneficial crisis that would allow them to “force the pace of political union” . . . and this vision went further back than the 1990s too.

[bert]

because imported stuff is not only very good but very cheap.

We shed the manufacturing that could be done elsewhere cheaper and perhaps better.

Americans love goods that are inexpensive compared with similar or less than equal stuff made in the USA.

We have a strong manufacturing base and our exports are strong

[Olog-hai]

I see you bought the liberal propaganda. If our manufacturing base were “strong”, then how come I have to really search hard for anything that says “Made in USA” these days when not even twenty years ago I could find such items all over the place? (How dare you make me nostalgic for the “Made in Hong Kong” label, too.) Why does our military have to buy Eurocopters, and refueling tanker planes from Airbus? Why did two of the “big three” automakers need to get bailed out? Why is our real unemployment figure in the 20 percent range? Why is our trade deficit so colossal?

The major reasons why manufacturing is “more expensive” in the USA are excessive regulations, union pressure (both private and public sectors) and a welfare system that rots the country from the inside out. Business startups in this country nowadays get crushed under these absurd regulations. Everything manufactured overseas contributes to our trade deficit—it translates to wealth leaving the country and never coming back, and even worse, we have to buy those goods with borrowed money, further indebting the country. Instead of a welfare system, we used to have a manufacturing that creates wealth, holds families together and builds people up instead of crushing them under government cheese—even Manhattan had lots of factories, that is until Mayor Robert F. Wagner Junior came along with his social programs that scared the manufacturers out of the city. And things have gotten worse along that political thinking over the decades . . .

[festusbanjo]

I suspect that Dr. Roubini has big positions in Greek and Spanish bonds and will lose his ass if the Germans don't step it up. If I were a German, instead of renting the villa for $1000 a week, I'd wait a few months for the New Drachma, then swoop in and buy the same villa for the equivalent of $10000.

[Lurker]

A loan is something that has a reasonable chance of being paid back at some point. Therefore these are not loans.

[Olog-hai]

I already cited one of the payments due for these loans—agreeing to having national sovereignty taken away. There are other terms that are themselves draconian, but the big one is giving up your country’s identity and becoming a “European” as the EU defines it, with your former country as a mere vassal, not even a province.

[Lurker]

I don’t care what the EU calls them. These “loans” will never be paid back. There isn’t enough money. Period