Treaty will not work and should be abondoned, says former chancellor

cyberhog wrote: »

Does Greece look like it’s been rescued to you? The policies of Europe's right-of-centre leaders have failed miserably and their desire to impose even harsher penalities on people without any desire to promote growth demonstrates their incompetence yet again.

golden lane wrote: »

the only way to get growth, is to cut down government obligations......and spend for growth........

borrowing to survive is economic suicide....

Scofflaw wrote: »

Then, personally, I would suggest a rethink of your analysis. The SF/ULA/Union claim that "austerity isn't working" may be both silly and startlingly irrelevant to the Treaty (or, if relevant, having exactly the opposite effect to their claim), but it's not based on fiction.

Austerity - that is, cutting the budget deficit - does have a negative effect on the economy. If the government is borrowing €15bn - thereby racking up public debt - it is also channeling that money first and foremost into the Irish domestic economy through spending, public sector wages, and social transfers. The €15bn it borrows, then, is a direct €15bn stimulus to the Irish domestic economy.

Removing that stimulus all at once results in a sharp contraction of GNP - that is, in more business closures, as businesses lose government contracts or the spending of PS wages or welfare cheques. That, in turn, means more job losses and a fall in tax take. Even assuming a straight 1:1 correspondence between the fiscal deficit and the resulting stimulus, you're looking at a roughly 10% fall in GNP. That's a bigger fall than we experienced as a result of the collapse of the construction sector.

What that means should be obvious - a new deficit. The new deficit should be smaller than the old deficit, but without further deficit cutting, it will not be stable - the effects of the original sharp contraction will knock on for a while, as businesses reliant on contracts or wages from the first round of failures go out of business in turn, and the domestic economy continues to contract. So the deficit will need to be balanced again, and then again.

The deficit is, in fact, a moving target. It's not something you can just balance as if it were a household budget and then that's that - instead, when you cut government borrowing and spending, you're cutting into the economy that supports state spending, and which state spending supports.

The "balance the budget" mantra makes exactly the mistake the anti-austerity mob like to accuse the government of making, and which the government is not in fact making - state budgets are not the same as household budgets. Come to that, even household budgets aren't without their effects on the wider economy - part of our problem at the moment is exactly that households are doing the same as the government, cutting their deficits and trying to reduce their debt.

I agree with the intention of balancing the State's budget, but it can't be done all at one go - not because there isn't the will to do it, or any of the other reasons usually trotted out, but because it simply cannot be done.

Both the anti-austerity position and the balance-the-budget-immediately positions are unrealistic. Both want things that cannot be done - the former cannot happen because we are already borrowing as much stimulus as we can, and there just isn't any further money for extra stimulus, the latter because sharper deficit cuts lead to sharper economic contractions lead to renewed deficits, not balance. The current gradual reduction path is the way between Scylla and Charybdis.

cordially,
Scofflaw

There is a legal glitch emerging with the fiscal treaty. The treaty purports to use the EU Court of Justice for countries who breach the terms. However the EU Court of Justice is an EU institution. The fiscal treaty is NOT an EU Treaty. It is a treaty of 25 EU states, but not an EU Treaty, which would require 27 states.
If it is not an EU Treaty then it cannot avail of EU institutions to administer its terms. David Cameron said as much when the deal was made.

cyberhog wrote: »

The only reason we have "economic life support" is because Germany don't want us to die. Period.