Skip to main content

Europe's suicide (com)pact

The draft of the fiscal compact, hailed as a masterpiece by Angela Merkel, was released yesterday (see here). Note article 3.1.a. which says that "the budgetary position of the general government shall be balanced or in surplus." This is more stringent than the old Stability and Growth Pact (SGP) that the fiscal compact supersedes. The consequences of fiscal austerity are already dramatic, and the notion that more of the same can actually have a positive effect is simple madness.

Comments

  1. Every countries' budget in surplus? Astonishing idiocy .... that's like saying everybody should be part of the 1%!

    ReplyDelete
  2. Yep. And it also enshrines the doctrine of expansionary contraction since it says that to "foster budgetary discipline through a fiscal compact" will lead to "sustainable growth, employment" and social bliss. A country may have a structural defict of 1% only if debt to GDP is below 60%. SGP on steroids.

    ReplyDelete
  3. However, 6 of 7 EEUU crisis were preceded by budget surplus...
    Shouldn't they have unemployment targets, like EEUU during Okun's times?

    ReplyDelete
  4. Booms generate surpluses, since revenue goes up. It would be more important to check whether government discretionary spending was being reduced before the recessions, in which case one could claim that, at least in part, contractionary fiscal policy was part of the causes of the recession. There is little doubt I think that in Greece now, for example, fiscal policy is contractionary. The fiscal compact will make things worse.

    ReplyDelete
  5. Of course. What I was intending to mention is that this surplus obsession is unfounded both empirically an theoretically

    ReplyDelete

Post a Comment

Popular posts from this blog

What is the 'Classical Dichotomy'?

A few brief comments on Brexit and the postmortem of the European Union

Another end of the world is possible
There will be a lot of postmortems for the European Union (EU) after Brexit. Many will suggest that this was a victory against the neoliberal policies of the European Union. See, for example, the first three paragraphs of Paul Mason's column here. And it is true, large contingents of working class people, that have suffered with 'free-market' economics, voted for leaving the union. The union, rightly or wrongly, has been seen as undemocratic and responsible for the economics woes of Europe.

The problem is that while it is true that the EU leaders have been part of the problem and have pursued the neoliberal policies within the framework of the union, sometimes with treaties like the Fiscal Compact, it is far from clear that Brexit and the possible demise of the union, if the fever spreads to France, Germany and other countries with their populations demanding their own referenda, will lead to the abandonment of neoliberal policies. Aust…

A brief note on Venezuela and the turn to the right in Latin America

So besides the coup in Brazil (which was all but confirmed by the last revelations, if you had any doubts), and the electoral victory of Macri in Argentina, the crisis in Venezuela is reaching a critical level, and it would not be surprising if the Maduro administration is recalled, even though right now the referendum is not scheduled yet.

The economy in Venezuela has collapsed (GDP has fallen by about 14% or so in the last two years), inflation has accelerated (to three digit levels; 450% or so according to the IMF), there are shortages of essential goods, recurrent energy blackouts, and all of these aggravated by persistent violence. Contrary to what the press suggests, these events are not new or specific to left of center governments. Similar events occurred in the late 1980s, in the infamous Caracazo, when the fall in oil prices caused an external crisis, inflation, and food shortages, which eventually, after the announcement of a neoliberal economic package that included the i…