There was a interesting BBC News story about the European Union’s broken “stability pact” . The big three Euro zone countries, Germany, France and Italy all wants the rules limiting government deficits abolished or made formally meaningless (In practice they have long been meaningless), whereas some smaller countries like Holland, Austria and Finland want the rules to remain-and be enforced. Most likely the big three will prevail. Anyway, from this BBC News story we can find the following excerpts describing just why Western Europe is in such economic mess:“The agreement limits the size of a nation’s budget deficit and has been criticised for not letting governments boost economic growth by spending more.”
“France and Germany have bust the 3% deficit limit in every one of the past three years, and along with Italy are calling for greater freedom to increase state spending.
They argue that the rules were put in place when economic growth was stronger and make no allowance for more difficult times.
As economies sputter governments are faced with higher costs relating to payments such as unemployment benefits, as well as pressure from voters to act as a catalyst for growth.”
But the point is that the big three has been in “difficult times” for years now (In fact current growth is only slightly below their 10-year average) and this is hardly the result of insufficient government deficit spending. It is in fact largely a result of excessive government deficit spending.
With this kind of economic thinking still prevailing the EU Commission’s goal of making Europe’s economy the world’s most competitive by 2010 appears outright laughable. At least if we’re talking about Western Europe. The low-tax Eastern European economies are experiencing very high growth.
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Beware the fatally wounded tiger as it will try to fight back ferociously even though the result will be the same. Certain death.
The western european countries have very few options left under the Euro. They can’t play around with the monetary policy, they are pretty much at the edge for spending now, they can’t raise taxes because they are facing recession and they face real competition from the other countries. Before they had no competition because the eastern countries were under communist rule. They have no more crutch to rely on this time!
What can they do now? They can either fight and refuse to accept economic reality which will hurt them harder…that’s what they are doing now. The welfare tiger is dying and very unpredictable!
Or they will eventually accept they have lost and do the “right thing”
And can you imagine what Americans would think if Germany dumped its redistributive welfare state?
This article leaves unmentioned the differences between being in the Euro Zone (which I consider most affected by what it discusses) and being only in the European Union, like the UK.
I wonder what all this betokens regarding the eventual joining of the Euro Zone by the UK? Or by the lately come “Eastern tigers?”
Joe- while all EU members have formally committed themselves to following the fiscal discipline of the Stability pact, it is only Euro zone members who are supposed to be punished if they break the rules. As the British deficit is roughly 3% of GDP, they too according to the old rules would potentially have been subject to fines by the EU comission.
The fiscal situation of the Eastern European countries differ quite dramatically with Estonia having a budget surplus, while the Czech republic have a deficit of nearly 10% of GDP.
Government spending increases growth the same way someone who breaks a window “improves” the economy by giving a job to the window repairman.
Hi all, I apologise in advance for my abysmal knowledge of economics, but I wonder if you could clear up a few queries for a college project of mine that is related to your subject.
1. Does the “trade surplus” go to anybody in specific (the govn’t for example), or is it merely a helpful indicator; if it is the latter, I’m sorry for the absurdity of the comment, however I do recall Bush promising to “refund the surplus” or something of the sort.
2. Does anybody know the annual value of crude oil? And more importantly, it’s exponential value to governments; whether it be after the initial profits are invested, or whether the claims that America is, in effect, the world’s “oil pimps”
3. Does anybody know of any other official values for energy, whether it be natural gas and/or electricity.
4. Annual value for manufacturing?
Thanx, and in case you’re wondering, I SUPPORTED the war in Iraq!
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