Saturday, May 12, 2012

Greece Isn't the Only EU country in trouble

Spain is next in line... with a renewed crisis. Spain tries again to restore confidence in banks - BusinessWeek
The government in February told banks to set aside (EURO)50 billion ($64.8 billion) in rainy-day funds to protect them against losses in the property market and elsewhere. Analysts say this could be raised to (EURO)80 billion, and believe the government might also oblige banks to increase provisions for healthy real estate loans.

Because the government is strapped for cash, it has little room to help rescue the country's banks. Fears that public finances might be overwhelmed by bailing out banks have led investors to consider Spain the next most likely European country to need an international bailout.
Banks should be let go under, just like any other business. In the case of Spain, there might not be much choice.

And it isn't only Spain of course... Euro Economy to Shrink as Spain, Italy Re-Enter Recession - Bloomberg
The euro-region economy will return to growth in 2013, with only Spain among its 17 members remaining in recession, according to the European Commission.

Gross domestic product will rise 1 percent in 2013 after declining 0.3 percent in 2012, the Brussels-based commission said today. While Greece will have the deepest slump, with GDP declining 4.7 percent, its economy may stay unchanged in 2013. Italy and Portugal will return to growth next year, while Spain’s economy may shrink 1.8 percent this year and 0.3 percent in 2013.
And while it is always popular - in political circles - to blame the crisis du jour for everything, Europe has been on a downward spiral for a long time.
In the 1970s, their average growth clocked in at 3.2%, in the 80s at 2.5%, in the '90s at 2.2%—and in the '00s, 1.2%. Yes, the 2008 crash was bad for everybody, but Europe is still heading down. This year, growth is likely to end up at an anemic 1%.
Something politicians don't like to talk about.

The French have "punished the markets" in their latest election. Without noting that government debt grew from 35% to 90% of GDP between 1990 and today. (No, that can't be why the county's debt was downgraded! Speculators! Eeeevil Bankers!)

Unemployment in the EU is 11% (much worse in places like Greece). Only Germany seems to be able to avoid this... The German budget is nearly balanced. There were 5 million unemployed a few years ago, today there are 3 million. Why?
Go back nine years, when Social Democratic Chancellor Gerhard Schröder launched his "Agenda 2010." He declared to the Bundestag: "We shall reduce social benefits, promote individual responsibility and demand more from each and all." True to his word, he loosened up labor markets, cut payroll, personal and corporate taxes, and enacted a "workfare" program that egged the unemployed off the dole. Angela Merkel is now reaping what her predecessor sowed—efforts for which he lost his job.
If bloated government, and excess spending was good thing, then Greece would look like Germany, and Germany would look like Greece. But in the real world... that isn't quite the way it works.

Government can't fix things. Not really. Somethings they do very well, but most things are best left to the market. There has been much talk of income inequality. Well the country in Europe that has done the "best" job of reducing income inequality is Greece. Yeah, that's a model to adopt. (And since the folks promoting it are not completely stupid, they have begun talking about Spain as an example.

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