Subscribe to Common Dreams News Updates
Most Popular This Week
Popular content
Today's Top News
More Voices Call for Europe to Invest to Dig Out of Crisis, Rather Than Cut Spending
Greeks 'Austerity' Plan is Proving Futile
MARSEILLE, France — After months of talk that Europe can only be saved by slashing its spending, a growing chorus of voices is calling for a new tack, encouraging governments to instead stimulate growth — even if that means spending money.
A protester stands in front of a banner that reads: "No to layoffs, jobs for all, with full rights" during an anti-austerity protest in Athens Saturday, Sept. 10, 2011. At least seven separate marches have been called for Saturday afternoon in Greece's second-largest city of Thessaloniki, ahead of Prime Minister George Papandreou's annual speech on the economy. (AP Photo/Kostas Tsironis) As a slowdown in the global economic recovery threatens to undo Europe’s austerity efforts, experts are reviving a fundamental debate on how best to dig out of the crisis of high debt and low growth.
One view has been to cut debt regardless of short-term consequences on growth. But as slower growth eats away at those austerity plans’ progress, economists have been reconsidering the merits of boosting growth to lower debt.
Germany, which is shouldering much of the cost of propping up its weaker eurozone neighbors, has been one of the most fervent advocates of spending cuts. The European Central Bank has also chimed in, hounding countries like Italy to pass austerity measures as a sign they’re worthy of receiving help.
Even European countries like France that are in better shape have been trying to calm skittish investors — and drive down their borrowing rates — by promising to cut costs.
But those measures have drawn fierce criticism that they risk driving the recovery into reverse and heap more pain onto those who can least afford it.
Instead, the U.S. and others have a different answer: It’s growth, stupid.
As President Barack Obama unveiled a huge plan to boost job creation, U.S. Treasury Secretary Tim Geithner called on other governments to strengthen economic growth as he prepared to meet officials from the world’s most developed economies in Marseille, France, on Friday.
The argument put forth by Geithner and others is that the best deficit-reducer is growth: When the economy is humming, it offsets spending and drives down both the size and the proportion of deficits. Rather than trying to scrimp their way back to prosperity, world economies need to spend money to make money.
“The best strategy for reducing public debt is to promote growth-enhancing fiscal policies,” the U.N. Conference on Trade and Development recommended in a report released this week.
What’s more, many argue that the danger of too much austerity is that it can put a stranglehold on growth by weighing companies down with taxes and making it harder for them to borrow money and hire more workers. That will only feed a viscious cycle of indebtedness.
Greece is one example. It agreed to slash costs in order to receive billions in bailout funds, and Luxembourg Prime Minister Jean-Claude Juncker who also chairs the group of eurozone finance ministers insisted on Wednesday that Athens wouldn’t get its next tranche of loans unless it kept those commitments. If Greece doesn’t get those loans, it could default.
But its austerity plan is proving futile as it slips deeper into recession: It now expects its economy to contract by 4.5 to 5.3 percent this year, far more than the 3.5 percent drop in GDP that was forecast in May.
Charles Wyplosz, a professor of economics at the Graduate Institute in Geneva, says it’s unreasonable to ask any economy in recession to reduce its deficit.
“Governments have to support growth before they think about reducing deficits,” he said. “It’s not the time to punish countries. It’s the time to stop the crisis.”
Athens appears to be slowly coming around to that way of thinking, though all its decisions are reviewed and approved by its bailout creditors. Finance Minister Evangelos Venizelos now says his main concern is reversing the economic contraction. The opposition has long called for tax cuts — rather than the increases pushed through by the government to secure bailout funds — in order to restart the economy.
Spain is trying to walk a similar path. The Socialist government had approved cuts that it hopes will slash the deficit from 11.2 percent of gross domestic product in 2009 to within the EU limit of 3 percent by 2013.
But with unemployment at nearly 21 percent and a general election on Nov. 20, both parties are turning their focus toward growth. The Socialists say they’ll raise taxes on the wealthy and banks and use the revenue to create jobs, while their opponents in the Popular Party want to lower taxes for new businesses.
Initially, many European governments did not have much choice but to pass strict austerity plans to convince volatile markets that they would not default. But in a country like Greece, where many investors are resigned to a default anyway, experts are wondering whether they shouldn’t try leaning more towards growth.
Germany, however, is holding firm. Earlier this week, German Finance Minister Wolfgang Schaeuble wrote in the Financial Times that cutting spending was “the only cure for the eurozone.”
“Piling on more debt now will stunt rather than stimulate growth in the long run,” said Schaeuble, insisting countries faced with high levels of debt need to cut spending, increase revenues and make their economies competitive, “however politically painful.”
The debate is mostly about Europe, but Paul Krugman, an economist and columnist for the New York Times, said that the U.S. was falling into a similar trap: fretting about its debt limit while failing to create any new jobs.
“The deficits we’re running right now — deficits we should be running, because deficit spending helps support a depressed economy — are no threat at all,” Krugman wrote in a column earlier this month. “And by obsessing over a nonexistent threat, Washington has been making the real problem — mass unemployment, which is eating away at the foundations of our nation — much worse.”
Even those who support budget reductions in Europe might agree. The U.S. has different circumstances, after all.
Despite its enormous debt load, America’s bonds are still in high demand, with their traditional role as havens of safety in times of turmoil intact. That keeps borrowing costs very low — unlike in Spain and Italy, where some fear interest rates could go so high that they’ll eventually need bailouts.
Greg Keller and Gabriele Steinhauser in Marseille, Nicholas Paphitis in Athens, Harold Heckle in Madrid, and Barry Hatton in Lisbon contributed to this report.
22 Comments so far
Show AllGrowth is not answer. Growth is the problem.
Have we reached that point in history where the reverbation of the increasing price of oil through the economy in combination with our huge outlays fot the military and runaway healthcare costs are going (not to mention a weakened consumer) are going to place on future growth?
'Instead, the U.S. and others have a different answer: It’s growth, stupid....As President Barack Obama unveiled a huge plan to boost job creation, U.S. Treasury Secretary Tim Geithner called on other governments to strengthen economic growth...'
Yes, growth as in tax cuts for businesses and defunding Social Security...yeah, that's the ticket.
Since the prospects of my ever being employed again seem grim, since I will soon be unable to afford health insurance, since I have a disabled brother on Medicaid & SSI who is given entirely inadequate care now, before the SuperCuts by the SuperCommittee, I guess I should thank the AP for the comic relief.
I hope things improve for you very soon, FWIW.
Thanks for the kind words, Redballoon and Verity.
Though I hope you are right about the SuperCommittee being meaningless, Verity, I fear you are wrong. I think the supercommittee is a trial balloon, intended to wrest representative democracy from the people (not that we have it now, I know). It will become the standard way in which everything will be legislated in the near future ... after all, why bother with pesky and boisterous two-party bickering when you can have a handful of congressional corporate suits writing the prescription for all that ails us?
At the same time, Verity, I applaud your optimism and hope--for my sake and my brother's, and certainly for the many millions even worse off--that your truth will prevail.
Basically spending to create growth, and cutting spending to reduce debt are both moot points.
It really doesn't matter what happens as long as the wealthy elite oligarchy ends up with all the money, and the poor, ill, and elderly end up literally eliminated, and by that I mean dead.
What is actually going on on planet earth at this time in history is the process of economic depopulation from nearly seven billion to two billion people.
This was a process that started about thirty years ago, and initially involved the transfer of as much as possible of the economy's liquidity to the already wealthiest 1% of the population. That 1% are the wealthy elite.
The reason that they needed all that money is so that they could afford to buy the governments of the world.
They have accomplished both (acquisition of the wealth, and the purchase of the governments) of these goals.
Now the agenda is for the wealthy elite oligarchy to dispose of the over-population of the planet.
They will do this in the United States by eliminating Social Security, Medicare, Medicaid, Supplemental Security Income, Unemployment Insurance, Disability, SNAP and all safety net programs. They will do this in the rest of the world by whatever means necessary.
All those people dying from starvation, lack of medical attention, and conditions too rigorous to be survived by the elderly has to look like it's an out of control chaos, but it has been carefully planned and is being highly orchestrated.
They are counting on everyone being incredulous that such an unthinkable plot could ever be implemented, but the wealthy elite oligarchy is a study in ponerology (Google that, because it's not in the dictionary).
Mark my words.
MEL
Investing to get out of a depression is what keynesian economics is all about.
Northern Europe knows all about it. We should follow their workable socialism.
It isn't only in climate science that one finds outright denial.
"Encourage governments" - is that what we are to do?
Gee - I thought we were the government - another story blown to you know where.
"The foundation of our economy" is employment.
Really - not the natural capital - am I naive or what!
Bullshit and then more of the same -from all quarters.
Manysummits
=====
It's not growth, it's sustainability. Today growth is just another dead end path to global environmental death. Growth is death. Sustainability is life. It's a stark choice but an easy one. Sustainability requires cooperation and sharing, not competition and greed. It's time to change.
Agree!
More than agree. Surely this is commonsense in that the only way humanity and the world can survive and prosper is through sharing of the world's resources and cooperating together. One family, One world.
It's too bad this "superior" creation of God, called "man," wasn't given the inner buttons that all of the lower species have. When there's a shortage in their food supply, declining livable territory, weather conditions, or other situations that will affect the overall well being of the whole society, they cut way back on increasing their numbers so those already living might survive. There are sure a lot of babies being born now, while the whole world is falling apart.
Guess we're going backwards to the early man who put their elderly and ill members out along the trail to die when they could no longer keep up with the rest. And while they saw babies as strengthening of the group, the babies were also put out if food was scarce, and the mothers' milk dried up.
Call me when the spending actually happens.
"The argument put forth by Geithner and others is that the best deficit-reducer is growth: When the economy is humming, it offsets spending and drives down both the size and the proportion of deficits."
BS! The best deficit-reducer is depreciating the currency, as in what Ben Bernanke has been doing. Paying off deficits with worthless dollars seems to be the chosen path in this government.
This will not work either in Greece or Italy as Greeks and Italians are basically crooks.
"experts are reviving a fundamental debate on how best to dig out of the crisis of high debt and low growth"
This propaganda from the Associated Press is like the "tail wagging the dog" in that elites paint a picture that they want to see and when they convince people that it's true the people make it true by their reaction. Edward Barnays pioneered the way for the modern "supply-side" dictatorship training at Harvard Business School, et al.
First the AP pulls the magical "experts" out of the hat. They are fictitious but when the reader believes their authenticity, then magically, the ideas, assumptions and claims following are authenticated.
But they are lies, albeit cleverly packaged.
The idea that "high debt and low growth" is a crisis is a case-in-point. Notice the AP's treachery here. It bundled a truth with a lie in hopes that the truth will carry the lie through. That debt is a crisis is a truth. That low growth is a crisis is a lie.
We need not growth but economic contraction until 75% of the Merkan ekonomy is gone. So the Merkan footprint can be cut 75%, to bring it in line with the world average, per capita.
Rank & file Merkans do not have to suffer as a result. Because of the remaining economy, they can claim 99% and leave crumbs for the elites. Granted they will have to wield torches and pitchforks against the elites to achieve this. But it's doable. There is no other way to fix the economy. This is just the facts laid out in simple terms.
AGain banksters and transnational corporations who got us into this mess have been gaming the system with the help of the Federal Reserve and austerity programs. They have become more profitable with free interest money from Fed reserve and giving themselves more bonuses and buying back stock and casino gambling and buying off mfg facilities in communist/dictatorship countries and using slave labor from these countries that have no human rights laws or regulations of product safety or building.
These people are shameless and know no boundaries and our politicians willing take the dollars these people dole out to become complicit or write laws to these uber wealthy benefits.
The middle east is revolting, London revolted, other Euro countries have protested and when will the rest of the people of the world stand up and say enough is enough.
A distinction needs to made between growth and development (as well as between the tangible economy and the metric and facilitator of debt/faith we call money). Increasing efficiency in use of some natural resource, resulting in using less of it, can be said to be development rather than growth,
David Harvey talks about growth in theis video series, especially beginning in part 3.
http://www.youtube.com/watch?v=fSsCiOIeJjY
The Enigma Of Capital - Professor David Harvey - Part 1 - London School of Economics
For three centuries the capitalist system has shaped western society and conditioned the lives of its people. Capitalism is cyclical and increasingly bankrupt. Boom-and-bust is its model. Laying bare the follies of the international financial system, eminent academic David Harvey looks at the nature of capitalism and why it's time to call a halt to its unbridled excesses.
He examines the vast flows of money that surge round the world in daily volumes well in excess of the sum of all its economies. He looks at the cycles of boom and bust in the world's housing and stock markets and shows that periodic episodes of meltdown are not only inevitable in the capitalist system but essential to its survival.
The essence of capitalism is its amorality and lawlessness and to talk of a regulated, ethical capitalism is to make a fundamental error. The Enigma of Capital considers how crises of the current sort can best be contained within the constraints of capitalism, and makes the case for a social order that would allow us to live within a system that really could be responsible, just, and humane.
David Harvey is Distinguished Professor of Anthropology at the City University of New York Graduate School and former Professor of Geography at Johns Hopkins and Oxford Universities. The author of numerous books, he was awarded the Patron's Medal of the Royal Geographical Society in 1995 and elected to the American Academy of Arts and Sciences in 2007. He is the world's most cited academic geographer and his course on Marx's Capital has been downloaded by well over 250,000 people since mid-2008:
http://davidharvey.org/|
Nature does this, not just Capitalism. Take wildfires in drought. Nature reshapes what isn't working. That's the way out.
We should be focussing our OWN BUYING, since that's what DRIVES THIS WORLD'S ECONOMICS, on those needed growth areas, the stuff of SUSTAINABILITY which was left out of the equations of this current excessive imbalanced economic structure.
We intend to now buy a Hyperbaric Oxygen Chamber and go into our own business, using our savings account, not a small risk for our financial situation on Social Security within a MULTIGENERATIONAL household. My daughter and I will then have a decent chance to make a living doing EXTREMELY NEEDED MEDICAL TREATMENTS AT PRICES THAT WORKING CLASS PATIENTS CAN ACCESS.
The existing medical establishment are DRUG PUSHERS for the evil pharmaceutical industry and this HBOT technology has be shunted into the shadows by the industry minions.
Hospitals limit access to HBOT to wounds that won't heal, the extreme failures of the drug industry where they have nothing to offer, and they stick to the mongo machines that use highest pressures, demand extreme safety precautions to match the extreme wounds and the extreme pressures, then CHARGE $1000 per session so that the hospitals can drain big money from Medicaid and Medicare and insurance companies.
Meanwhile there are MILD HBOT chambers that people could be using at home BUT THE ESTABLISHMENT WON'T TELL YOU AND THEY WON'T EVEN LET PEOPLE CHOOSE. And the research on the wide variety of cases that would benefit from HBOT go sit on the shelves and people suffer.
The research shows that over half the returning troops have brain damage from concussions suffered in the war zone, many not even recognized in their records. HBO treatments (at safer mild pressures) do relieve the PTSD that goes with the brain damage. The VA foists psych drugs on them that don't work worth the risks of nasty side effects on those young people. Ditto for the pesticide damage that caused ADD in people, most of which doesn't even get certified as the causes. Plus the stroke patients, plus pneumonia, plus respiratory distress, plus so many other treatment cases where the current establishment uses horrifying modalities that are easy for them and very profitable since they control CHOICE.
This is an example of a huge sustainability step for people to take to MOVE this planet into a safe zone for PEOPLE to thrive. To keep this doable, we need to draw our families together into multigenerational groups, cut out the nonsensical consumption and focus on what really matters to our pursuit of happiness and normal pleasures with genuine benefits.
Thanks for the headsup on the articles and theories.
Gosh. The Herbert Hoover/Andrew Mellon slash the government bit makes things a lot worse? Who da thunk? On the flip side how could we forget that creating huge debt and essentially putting everyone on the government payroll during WWII is what finally got us out of the Great Depression? We obviously have created a lot of economists in the last 30 years who should go back and take a course in economic history or should just flat turn in their Ph.D.'s.
It amazes me that we're letting a lot of libertarians who think Haiti is a good economic model make economic policy. As I've said before, it's gonna be a lo-o-ong recession for those of us who aren't at the top of the economic heap.
I feel for all the poor schmucks in Greece, Ireland, Italy, Spain and the U.S. who will actually have to pay the consequences for the idiots calling the shots.
This is how empires fall they are brought to their knees in global pursuit of rabble armies, destroyed from within by corruption, greed and internal division, threatened from abroad by erosion of international credibility, all the while believing in their own invincibility and propaganda. Surviving only to play second fiddle to the rise of the next world power. Squandering their final opportunity to create a lasting peace, by simply empowering the people with their wealth and knowledge created.
Situation: Global Industrial Complex destroying life sustaining process of entire planet.
Consequence: Civilization Fails.
Solution: Develop sustainable nonviolent methods to heal environmental & social infrastructure.
Ultimate Goal: Create Technology & life styles supporting a healthy diversified Earth while Tera Forming Mars into a life sustaining World..
Outcome: Military Industrial Complex is tasked toward Project*Mars, Global Population is tasked toward healing itself & the environment.
Solving World issues & initiating strong Global*Economic Recovery is a matter of effectively applying Human Potential, NOT Political, Financial, Corporate or Market Wrangling.
C.C.C.+Community Conservation Core, A.R.C. +Abuse Recovery Centers, My*1040 + Individual Directed Capitalization, Lotto*2013 = 2*Billion Jobs, Global Investment, Recovery, Security, Unity, Healing & Global Shift toward a World4Peace.
There is a Plan, it Can*Work
12*Minutes + 13*Months = World4Peace
Unite the C.H.A.O.S.
Global Peaceful*Intent must start somewhere, Imagine people all over the world, displaying their heart of peace in actions of all types wearing peace heart jewelry patches tee shirts etc. YT videos, Flash mobs holding peace heart signs singing "We All+R+Saying " + "Build Peace Today" - Silent Marchs carrying peace heart banners, A unity of global expression, with a single powerful goal. Displaying the people's commitment to developing nonviolent, sustainable, peaceful solutions... Start*2*Day ;)
Hmmm
The only legitimate solution is to tell the Private Banks to take their Private debts and head straight to bankruptcy court. File charges and arrest the corporate officers and politicians that created the mess. Hold these people personally accountable for their actions. Iceland did it. The bankers lost and the people of Iceland are prospering. This "crisis" is just one big giant bank robbery in reverse. The banks are trying to pull off a 30 Trillion dollar heist.
Just say NO to the Banks and yes to the people!