Friday, March 25, 2011

Portugal, Greece and More

Greek unemployment has now surged to 16.5 percent as it struggles to implement a half-baked austerity program. Greek's austerity program is an example of policy gone berserk. The austerity program that Greek politicians have pursued (with the support of the EU) is too little to have any impact on their spiraling debt problems and too much to permit the economy to avoid collapse. Why do this?

The Portuguese have rejected austerity. Others will follow. Austerity without at least a partial debt default is a foolish and unsustainable policy. The best historical precedent for the madness going on in the European union today is the reparations payments program foisted onto Germany by the Treaty of Versailles. We know how that experiment ended. Enough.

There is no reason to insulate bondholders from the folly of their investments. They should bear the brunt of bad decisions. Portugal, Greece, Ireland, Italy, and Spain should default, at least in part, on their sovereign debt. "Should" will eventually turn to "will" anyway. There is no way that these austerity programs are bearable.

None of the European economies are truly competitive any more. Europe has been carried along by the American economic engine for the past two generations. But, the US can't be the engine that pulls the EU anymore. The US has problems of its own that increasingly mirror the problems of the European zone.

The economic future is with countries that have competitive economies fostered by governments that see economic growth, not economic pie redistribution, as the number one goal of economic policy. This means Asia. This means parts of Eastern Europe. It means one or two isolated situations in Latin America. Everywhere else, the number one goal is to divide up the economic pie. That never leads to good things for the average person who finds, inevitably, his/her share of the diminishing pie diminishing as well.

The rich do not necessarily get richer. Sometimes the rich get preoccupied with implementing policies that stifle economic growth. Hubris breeds incompetence. That is what has happened to Europe and the United States.

No comments: