Sovereign debt bubble thread

[Sheilbh]

austerity in France

like 60k new teachers, right?

Yeah.  I mean even there he said he'd pay for it by cutting other departments.

I wonder if one problem is that the Eurozone debate's been sort of transposed over into the American one when they're totally different.

Edit:  Though that's what I meant by one of the exceptions.

[Admiral Yi]

But this is the same issue of what you're reading and addressing though.  Are we talking about the 'Occupy Growth First' crowd or are we talking about the pro-growth camp within the EU?

I'm talking about anyone who argues that austerity should be relaxed in the Eurozone in the interest of generating growth.

Do you have that quote about being a slave to the bond markets? 

Of course not.

To take the example of Hollande, his policy for example is, fundamentally, austerity in France but growth in the Eurozone.  He wants more taxes than Sarko and a some spending in other areas.  But, as I say, his policies would balance France's budget one year later than Sarko.

This is not what I have been reading about Hollande's proposals.

[Sheilbh]

I'm talking about anyone who argues that austerity should be relaxed in the Eurozone in the interest of generating growth.

That's helpful for you.  It allows you to include everyone but Merkel in a lump, ignore the serious arguments and focus on the 'Occupy Growth First' crowd.

This is not what I have been reading about Hollande's proposals.

He will balance France's budget by 2017 (same as the UK), Sarko wanted it done by 2016.  The only candidate who was really about austerity and spending cuts was Bayrou.

It's like the argument between the Tories and Labour in 2010 the actual difference was over a very small amount.

But it's not how Hollande (or Sarko) presented it.  The Economist joked that while the UK government boasts that it's 'inflexibly committed to austerity' and Hollande announces his election is a 'rejection of austerity' both propose to balance their budgets over five years.

Edit:  Here's the Bloomberg article.  He promises to increase spending by €20 billion and to raise taxes by €29 billion, and though he vows to fight austerity, 'The budget plan aims to eliminate the deficit in 2017, one year later than under Sarkozy's plan, with a 3 percent of gross domestic product deficit target for 2013.':
http://www.bloomberg.com/news/2012-05-06/hollande-defeats-sarkozy-in-shift-of-power-to-french-socialists.html

[Admiral Yi]

That's helpful for you.  It allows you to include everyone but Merkel in a lump, ignore the serious arguments and focus on the 'Occupy Growth First' crowd.

The serious arguments??

He will balance France's budget by 2017 (same as the UK), Sarko wanted it done by 2016.  The only candidate who was really about austerity and spending cuts was Bayrou.

It's like the argument between the Tories and Labour in 2010 the actual difference was over a very small amount.

But it's not how Hollande (or Sarko) presented it.  The Economist joked that while the UK government boasts that it's 'inflexibly committed to austerity' and Hollande announces his election is a 'rejection of austerity' both propose to balance their budgets over five years.

And what's he going to do between now and 2017?

BTW, if you're offering up Sarkozy as an examplar of domestic discipline, that might not work very well.

[Sheilbh]

The serious arguments??

The argument I outlined earlier being made by Monti, Hollande and the rest that you described as coherent and reasonable.

And what's he going to do between now and 2017?

He'll pass budgets cutting the deficit over the period until the budget's balanced and, because of the fiscal pact, the French deficit'll be under 3% of GDP (from 5.2% in 2011) by 2013. 

[DontSayBanana]

Honestly, I don't know why we're squabbling about "austerity" versus "anti-austerity" here.  Politicians have been putting their own slants on their respective measures for months- Politician A will brag about "austerity" in the form of shrinking specific programs, all the while continuing to support increases in certain departmental budgets; Politician B will brag about the ability to retain jobs while "regretfully" shrinking certain programs.  Most of these measures are starting to look pretty similar, and I doubt you're going to find an exemplar of "austerity" in the definitive sense within any government in the world right now.

[Admiral Yi]

The argument I outlined earlier being made by Monti, Hollande and the rest that you described as coherent and reasonable.

Could you refer me to a thread page?  I don't know what you're talking about.

He'll pass budgets cutting the deficit over the period until the budget's balanced and, because of the fiscal pact, the French deficit'll be under 3% of GDP (from 5.2% in 2011) by 2013.

Are you sure you're not Jimmy Carter pitching Hamas?  This is not jibing with what I've read in The Economist.

[Zanza]

from Spiegel.de:

The Germans are like a man in a hot air balloon preparing to throw a large concrete block out to increase lift, without realizing that it is chained to their leg.

[Sheilbh]

Could you refer me to a thread page?  I don't know what you're talking about.

The quibble post here:
http://languish.org/forums/index.php/topic,4552.msg413576.html#msg413576

Are you sure you're not Jimmy Carter pitching Hamas?  This is not jibing with what I've read in The Economist.

I think the Economist leader set out a lot of worries, but that's what it's elegantly for.  The reporting about Hollande is slightly different.

The fiscal pact's still going ahead, so he'll have to meet the 3% target.  I'll quote Bloomberg's article again:
'The budget plan aims to eliminate the deficit in 2017, one year later than under Sarkozy's plan, with a 3 percent of gross domestic product deficit target for 2013.'
The Economist's caustic remark:
'TAKE two countries. One has a government "inflexibly committed to austerity", lacking a Plan B and dragging the economy down, according to its critics. The second country has a new President who has just declared that his victory is a rejection of austerity. The victory has been hailed as a new dawn for European politics.

The first country, the UK, is aiming to balance its budget by 2017. The second country, France, plans to balance its budget by, er, 2017. Funny old world.'
Here's the Economist after his first round victory:
'Mr Hollande promises to stick to France's 3% deficit-reduction target next year, and to balance the budget by 2017 (which would be the first time since 1974). But his manifesto is a wish list of tax-and-spend policies. By his own calculations, his extra spending plans amount to €20 billion over five years. This is only a small fraction of the country's spending, but it is still a step in the wrong direction. The IMF says the 2013 deficit will be 3.9%. On that basis meeting the 3% objective may mean an extra €18 billion in cuts next year alone.'

Edit: The real significance of Hollande's election is what he means for Eurozone policy.  French policy will change a bit, but we're not talking Mitterrand '81, alas

[Zanza]

France doesn't exactly need more taxes and more spending in my humble opinion.

[Sheilbh]

France doesn't exactly need more taxes and more spending in my humble opinion.

I agree.  But they're French.

[The Minsky Moment]

All this talk about pacts just betrays the fundamentally flawed design of the Eurosystem.  From the point of view of each member of the system, the euro is basically a foreign currency that is being used as a domestic currency.  They don't issue it, they don't control it, but they use it and have to get access to it to do transactions.  That imposes a hard fiscal (budgetary) constraint as well as a current account constraint.  Those constraints can only be evaded temporarily by getting credit from other system members.  So what you have is basically like a gold standard, or like sub-national units that are sharing a single national currency.

Only in a gold standard, when a sovereign blows their fiscal or current account constraints, they leave the system - that is why historically commodity money standards are unstable and don't last.

The sub-national analogy also doesn't work both because the members here are independent sovereign states and because there is no national issuer of currency in the Eurozone, i.e. there is no sovereign Eurozonia.  The EU does have some aspects of nation-ness but the EU and the Eurozone are not coterminus which just adds to the confusion.  The only Eurozone-wide institution of significance is the ECB, and its authority was deliberately hobbled to prevent it from acting effectively in a sovereign-like capacity.  So what we have is a train with no one in the driver's seat and each separate car with the ability to steer whichever way it wants.

[Admiral Yi]

The quibble post here:
http://languish.org/forums/index.php/topic,4552.msg413576.html#msg413576

I offer you this deal Shelf.  I will agree that talk of easing austerity in the context of more expanisve monetary policy is reasonable, if you will agree that arguing for easing austerity divorced from monetary policy is retarded.

[Richard Hakluyt]

The Economist has been predicting dire results for France since I first subscribed some 30 years ago, yet they seem to thrive on it 

Re budget balances and austerity, looking at the back of the aforementioned magazine; the USA and UK have budget deficits of 7.6% and 7.7% of GDP, the Eurozone has one of 3.5%; Italy, considered to be a weak link, has one of 2.2%. I don't see how a lack of austerity is the Italian problem, I guess the bond markets are pricing in future growth in the UK and USA, but are sceptical about future growth in Italy..........

[MadImmortalMan]

Only in a gold standard, when a sovereign blows their fiscal or current account constraints, they leave the system - that is why historically commodity money standards are unstable and don't last.

Technically, all money standards "are unstable and don't last". There have been commodity-based standards that lasted much longer than anything currently in use, but eventually they all failed. I assume everything we're using now will also fail.