contract

Grudgingly, Europeans (when offered the choice) have been accepting austerity. In May, Irish voters came out in support of the fiscal compact by more than 60% to 40% in a nation-wide referendum. Last Sunday, Greeks went to the polls and (though a governing coalition has yet to be officially announced) it looks likely that a pro-bailout government will be formed. The caveat to all this, however, is that there are strong calls from political leaders in both Greece and Ireland for some form of renegotiation of the bail-out terms. Voters may be accepting austerity for now, but only with the proviso that things cannot continue like this for much longer.

German Chancellor Angela Merkel has been standing firm against the idea of renegotiation (whilst EU officials have been slightly more open). Alexis Tsipras, the young leader of the radical-left SYRIZA party, who campaigned heavily in the Greek elections against the austerity programme associated with the bailout, believes that Europe will now be forced to adopt a new approach. He told his supporters in Athens that: “The policies of austerity have been defeated. They will not be able to push forward with them either in Greece or Europe.

Certainly, those supporting renegotiation appear to hold a stronger hand in the European Council than ever before. In France, the Socialist Party emerged as the big winner in parliamentary elections held over the weekend. With control of both the Senate and the National Assembly secured, newly-elected French President François Hollande will now have strong parliamentary backing to promote his pro-growth agenda to European leaders.

Moreover, even some of the strongest advocates of austerity are starting to waver. Last week, the British Chancellor of the Exchequer, George Osborne, unveiled a £140bn (€173bn) emergency lending scheme to try to kick-start the stagnant British economy. The package of measures includes policies to boost house building and provide small businesses with cheap loans, and is intended to steer the UK away from a potential credit crunch caused by the ongoing Eurozone crisis.

So, is it time to change strategies and renegotiate looser bail-out terms in Portugal, Ireland and Greece? Recently, we had a comment sent in from Lazaros who argued that the current approach was proving disastrous: “If we continue down this road the only thing that we’ll witness is more and more countries needing bail-outs. Portugal and Ireland are already there… Spain got it last week… Italy and Cyprus will follow in the very next weeks/months. It’s a death spiral. If we go on like this, at the end there will just not be enough money for bail-outs and the whole Eurozone will be bankrupt.

We took this comment to Gay Mitchell, an Irish MEP for the Fine Gael party who has previously called for greater “solidarity” from the EU as recognition for Ireland’s progress. He was, however, cautious in his response to Lazaros:

What we’re trying to do with the austerity measures in different European countries is to get the GDP-to-debt ratio under control. If we don’t do this, then taxpayer money will continue to be used to service national debt instead of being invested in growing the economy. In Ireland, we struggled with high public debt in the 1980s, and it took us several years to start to grapple with the problem. However, we pruned the rosebush, and it started to grow again.

Having said that, it’s not enough to bring public finances under control. We have an opportunity to invest in growth. The problem is, the EU doesn’t have the money do to this, so we have to get member-states to do it. In Germany and elsewhere, people are understandably cautious about this approach. So we have to carry public opinion in those countries.

Still, if anybody thinks you can bail-out Greece by simply transferring tax payers money, they are completely mistaken. Take Latvia: after the crisis they cut pay there by almost 30 per cent. The Latvian Prime Minister was elected based on his promise to implement tough austerity measures, and it paid off. Unemployment has gone down in Latvia. So, we shouldn’t despair too much, but nor should we seek a magic bullet.

What do YOU think? Are the bail-out terms too strict in Portugal, Greece and Ireland? Is it time to renegotiate? Or would renegotiation make it seem that Europe isn’t serious about cutting its deficits? Let us know your thoughts and comments in the form below, and we’ll take them to policy-makers and experts for their reactions.

IMAGE CREDITS: SXC – EyeLens

16 comments Post a commentComment


  1. Jose Manuel Rodriguez

    I think we need to restructure the states like spain, greece … we need to relocate all the people that actually hasnt a job to a new industry.Focus our money not to the bank only.The prblem is to be competitive we need to surely underpay the work because is impossible to beat countries like china with their prices.In all the cases we need changes now!

  2. Karel Van Isacker

    A struct budgetary policy is needed in all the countries affected, including clampdown on any form of corruption, tax evasion and inefficiency within the state apparatus. However, the deficits should not be battled by taking the means away from those that need help: people with disabilities, the sick, the poor. Rather, from those that have profited in the past from the system (real estate moguls, bankers, etc.) should be targeted, as well as the high incomes who have avoided taxes in a variety of ways (see setting up of offshore accounts, tax free bonuses, etc. And last but not least, as long as there is no fiscal union whereby everyone EU citizen is taxed the same or similar way, no Union will exist as there will be a constant stream from the heavily taxed North to the tax havens in the South. This is NOT acceptable and has been pushing those very states towards complacency and self indulgence. Finally, about time that banks are taught that betting on someone else’s misery is ethically unjust. Any losses they make out of that should be covered by their own means and bonuses, and not by the tax payers. Retroactive claims on paid out bonuses should be default practices for defaulting banks.

  3. Henri Erti

    Certainly the austerity packages are the normative solution to decrease the debt-to GDP ratio, but such policies undermine the negative externalities, which rise from cutting social programs and public goods. Estonia has been the poster-child for advocates of austerity and surely they have factual numbers to support their claims. However, cutting back on social spending and public goods can cause turmoil among citizens, who for so long have been enjoying the fruits of public goods and services. Whether such luxury has been earned or not, eliminating them through austerity programs is going to be painful and most surely a political harakiri.

    Furthermore, in Finland tax-payers are becoming increasingly annoyed with tax-money flowing overseas while public sector is rapidly decaying. Consequently, social unrest rises and confidence for the EMU declines as we speak.

  4. Eusebio Manuel Vestias Pecurto

    Eu estou de acordo os resgates devem ser negociados agora as dividas nacionais todos nós sabemos que tem que ser pagas pelos contribuintes Criar mais postos de trabalho e que haja menos medidas de austeridade para podemos salvare a zona do Euro

  5. MandyandPj Leneghan

    I think that all Europeans, especially those that seek to represent citizens, should watch the documentary, The Money Masters. It, in my opinion, exposes the causes of the current (and perpetual) crisis and again in my opinion, presents the only solution at the end of the documentary.It is designed for Americans but applies globally…pj ///THE MONEY MASTERS is a historical documentary that traces the origins of the political power structure. The modern political power structure has its roots in the hidden manipulation and accumulation of gold and other forms of money. The development of fractional reserve banking practices in the 17th century brought to a cunning sophistication the secret techniques initially used by goldsmiths fraudulently to accumulate wealth. With the formation of the privately-owned Bank of England in 1694, the yoke of economic slavery to a privately-owned “central” bank was first forced upon the backs of an entire nation, not removed but only made heavier with the passing of the three centuries to our day. Nation after nation has fallen prey to this cabal of international central bankers./////http://youtu.be/JXt1cayx0hs

  6. ECB Watch

    I’m guessing “renegotiating the bailouts” means alleviating
    the austerity measures imposed on the recipients of the bailouts, namely Ireland, Portugal, Greece, and soon Spain.

    The austerity measures are counterproductive? That’s obvious. But removing them may not help as much as its proponents presume. How is that? There is a massive debt overhang, private and public, and the market is telling us that it can’t be paid off, let alone increased through deficit spending.

    Until either these countries exit the Euro so they can regain macroeconomic room for maneuver (as did Argentina in 2002, and very successfully so [1]) or the design flaw of the Euro is fixed, we have every reason to despair, contrary to Gay Mitchell’s prediction. BTW, by using Latvia to support his case (whatever that is, it’s not clear) he only confesses to being clueless. I refer you to Paul Krugman [2].

    Something will have to give, perhaps a massive default. Governments will have to keep the banks running by hook or by crook when this happens or else… They can’t withstand shocks, by design (leverage), so governments have no choice but to bail them out. Governments should use this opportunity to restore, with steadfast implementation, a Glass-Stagall-like separation between commercial and investment banking.

    It’s repeal, and the giant bank supermarkets it has engendered is the cause of all the evil that was unleashed in 2008. The banks have successfully pushed back the timid attempts to regulate them since then. Even more so in the EU than in the US, and much of the blame goes to the French establishment [3]. Conservative or socialist isn’t really a determining factor when it comes to that: through their distorted worldview, they both see their Gosbanks as national prizes to preserve at all cost (literally).

    Apparently, the new proposed European directive on resolving failed banks silently avoids this option [4]. (Gos)Banks win again, so we’re only left with the hope the backlash, when it comes, is fatal for their reckless and predatory business model.

    [1] http://www.scribd.com/christos_koulis/d/67930261-Argentina-s-Economic-Recovery
    [2] krugman.blogs.nytimes.com/2012/06/10/latvian-competitiveness/
    [3] online.wsj.com/article/SB10001424052970204485304576641561540266494.html
    [4] online.wsj.com/article/SB10001424052702303753904577450570353469292.html

    • ECB-Watch

      I said the Eurozone has come to such an impasse that
      something will have to give, such as a massive default. Well, check this out:

      European policy makers are unlikely to solve the region’s sovereign-debt problem unless they have a crisis “moment” like Lehman Brothers Holdings Inc.’s 2008 bankruptcy, said Gary D. Cohn, Goldman Sachs Group Inc.’s president and chief operating officer.

      businessweek.com/news/2012-06-20/cohn-says-europe-needs-lehman-like-moment-to-spur-action

      My idea of seizing the day and his probably aren’t the same, though.

  7. Vicente Silva Tavares

    Karel Van Isacker, tax heavens of the South? You must be kidding. Portugal has a tax load superior to Germany. Actually economists point out that fact for lack of fiscal competitiveness for foreign investors to invest in Portugal. This reminds me, the speech of Angela Merkel, saying that people of the South did not work as Germans, when the statistics says Portuguese workers work more 295 hours per year than Germans. Portugal right now has less holidays than Germans, Portuguese women work much more than German women. The great difference is, Portugal produce shoes, wine, clothes and little more. Germany produces BMW, Mercedes, Porches and Siemens. Of course productivity is much higher. Now let me do a question: Are Germany really interested that countries of the South get industrialized? Being the China of Europe? I don’t think so. Last question: aren’t Germany forgetting its own recent history of debts and how it has been helped? What Merkel is doing is creating German anti-corps. And we´ll see the Europe dream going to the drain, thanks to Saint Merkel. May be she will be in History as the undertaker of European Union.

  8. Christos Mouzeviris

    Why they are insisting on bringing the examples of Latvia and Estonia? Austerity “paid off” they say…. So is that why most Latvians and Estonians are migrating elsewhere in Europe? Is that what they are trying to do with Greece and Ireland? Balance the public debt, but make the Greeks, Portuguese and the Irish go to find work in every other country but their own? Why not allow them to have a future in their own country? And this comes from somebody who migrated.. But it was my choice; a lifestyle choice, I was not forced into it….

    • Henri Erti

      Thank you for your replay. In my opinion the austerity plans can be hazardous if they results in dramatic cut-backs in public goods, which people have been utilizing for a longer period. When these goods/services are taken from the people in order to assist another nation, (whatever the reason might be) one is playing with fire. I would be bold and perhaps naive to conclude that austerity did not pay off in these countries, since we can only examine the results in the long-run. Therefore, it is a bit too early to draw conclusions from an experiment, which has not even ended. Every nation has to be responsible for its own fiscal-policy and debt-levels, however austerity plans as a result of poor management of finances is harsh burden on the tax-payers.

  9. Lazaros Kalaitzidis

    Karel Van Isacker probably comes from the wealthy european north and has swallowed the fairy tails their media are feeding them. I would advise him to take some time and go on holidays in the european south to see by himself what is really going on there and come back to reality and reason. “Tax heavens of the South” is pure nonsense, same as all his post which is just a wishfull thinking combination of backing the policies that are implemented together with criticizing the very same policies. Everything that he proposes as solutions is true and could work. But nothing among all that is in the EU agenda, because those actions would harm the very center of the EU neoliberal policies. So i would advise him instead of offending the southern countries, better make a question to his own northern leaders, why they are doing nothing about tax evasion, fiscal heavens, corruption, unethical bankers etc etc.

  10. kallistratos dionelis

    Capitalism is the synonym of the game we have all played; it is “monopoly”.
    At the end, one player gets all the money and the game is over…. except if the winner is smart enough to redistribute the money he collected (and, by doing so, the game continues).

    To avoid the above there are two alternatives, both based on a strong independent role of an entity we need to invent that will control the banks’ financing modalities and policies (ECB has failed to do it: so ECB is the real guilty to be blamed.
    So, the new entity either seriously monitors the debt in a state (public and private) or in extreme cases will never appear to be too high alking

  11. kallistratos dionelis

    Capitalism is the synonym of the game we have all played; it is “monopoly”.
    At the end, one player gets all the money and the game is over…. except if the winner is smart enough to redistribute the money he collected (and, by doing so, the game continues).

    To avoid the above: there are two alternatives, both based on a strong independent role of an entity, that we need to invent, to control the banks’ financing modalities and policies (ECB has failed to do it: so ECB is the real guilty to be blamed.
    So, the new entity either seriously monitors the debt in a state (public and private) or -in extreme cases- will appear at a very early stage to guarantee a fair negotiating procedure between creditors and debtors.

    We must never forget that “debt” as such is not a bad thing! managing the debt makes the difference!

  12. Peter Schellinck

    The bail-out terms are not too strict and no renegotiation is on the agenda. Rather a balanced investment program should be introduced as complement. Prosperity can be enhanced even with very minor or no growth by dedicating funds to innovation. We Europeans have been facing austerity and we are all in it together, so let’s get out of it together.

    The courage and leadership must now come from the politicians. As mentioned in various previous discussions an economic and monetary union is to be cemented by taking bold decisions even if this means surrendering sovereign powers. It’s also time to see action coming from the hundreds of PM’s we elected into the European Parliament. We have tools and people enough in place, they just need to decide and implement.

    With the necessary social and environmental governance our monetary union must be embedded by solving the debt distortion through solidarity and group sharing of the burden. This correction is an one off effort.

  13. Rémi Cesaro

    For me, EU was supposed to be here to protect European people ? Can someone explain me how EU-FMI-ECB is helping Greece ? Austerity was there to help Greek government to reduce deficit, increase receipts and finally improve economic development. And now there is a risk of political-social explosion and a risk of bankrupt !

    => The main problem of euro is the strong dependance with private financial markets.

    Why ECB cannot borrow money directly to states ? If we were able to borrow money directly to states (and no via private banks) :
    - ECB could buy Greek debt and allows big investments for future
    - Financial institutions could more difficultly speculate on our public debts
    - it could improve confidence of stability of European countries and give a new start for private investments

    => ECB should be invested by political power !

    The main goal of ECB is stabilized the inflation in eurozone. There are very good reasons for that. But evidences are there to say we need to play with our own money to be more competitive outside of EU.

    => Austerity can not sacrifice social structures for financial bail-out.

    Countries with a strong social structures were less hardly hit by financial crisis.

    => Eurobonds will not solve the problem of financial dependance

    Maybe yes, eurobonds could reduce speculation but we will be still dependant of financial markets and interest rates too big compared to growth rate.

    => Reforms are necessary to optimize national expenses but not as emergency measures.

    => Change rules of Euro will be more interesting than this bail-out

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