July, 23 2010, 12:00am EDT
For Immediate Release
Contact:
Dan Beeton, 202-239-1460
New Report Suggests Stimulus Better for Spanish Economy, Debt Burden, Than Austerity
A new report from the Center for Economic and Policy Research (CEPR) shows that Spain, under pressure to cut spending and raise taxes while its economy is barely recovering, might be better off with a continued stimulus.
WASHINGTON
A new from the Center for Economic and Policy Research (CEPR) shows that Spain, under pressure to cut spending and raise taxes while its economy is barely recovering, might be better off with a continued stimulus.
"The planned budget cuts and tax increases in Spain are not only unnecessary, but socially and economically destructive," said economist Mark Weisbrot, Co-Director of CEPR and lead author of the report, "Alternatives to Fiscal Austerity in Spain". "They also could easily leave Spain with a worse debt problem than they would have with a continued fiscal stimulus."
Spain's unemployment rate has shot up from 8.5 percent in 2007 to more than 20 percent today after the collapse of large housing and stock market bubbles. The paper shows that the bursting of these bubbles, and the resulting collapse of private demand, is the cause of Spain's current economic and budget problems - not government overspending.
The report argues that continued fiscal stimulus could be financed by the European Central Bank, through money creation, much as the U.S. Federal reserve has done over the past three years, and the Bank of Japan has done since the 1990s. Even if financed through ordinary borrowing, the projections in the paper find that Spain's debt-to-GDP ratio would not end up much higher in 2020 if the government continued a stimulus over the next two years, than under the current planned fiscal tightening.
The report provides projections for scenarios in which the fiscal tightening leads to slower growth and, therefore, higher borrowing costs for the government. These lead to higher debt-to-GDP ratios than would occur under a continued stimulus program.
"With these depression-level unemployment rates, the government's first priority should be creating and maintaining employment, not fiscal tightening," said Weisbrot.
The Executive Summary follows:
Executive Summary
This paper looks at the planned austerity measures in Spain, the rationale for the spending cuts and tax increases, likely outcomes for future debt-to-GDP ratios, and the probable results of alternative policies.
It is widely believed that Spain got into trouble because of the over-expansion of government spending. However, during the economic expansion from 2000-2007, the gross debt-to-GDP ratio declined sharply, from 59.3 to 36.2 percent of GDP. In 2009, interest payments on Spain's debt were just 1.8 percent of GDP, a modest interest burden. Net debt had declined to 26.5 percent of GDP in 2007.
Net debt is a better measure of the country's debt burden than gross debt, because interest that is paid on debt held by the government accrues to the government, and therefore does not represent a burden on government finances. In this paper we will use both figures, because the gross debt figures are most commonly cited in the press.
The cause of Spain's current debt problems, as well as its unemployment and weak recovery, was thus not an over-expansion of government but the collapse of private demand. The country had built up a large housing bubble that began to collapse in 2007, at the same time that the economy was hit with external shocks from the world recession. Between 2000 and 2006, construction increased from 7.5 percent of GDP to a peak of 10.8 percent. Since the collapse, housing starts have fallen by more than 87 percent from their peak.
Spain also suffered from the collapse of an enormous stock market bubble: the stock market peaked at 125 percent of GDP in November 2007 and dropped to 54 percent of GDP a year later. The wealth effect of this huge drop in stock values would be expected to be very large, in the range of a 1.3 - 1.75 percent fall-off in GDP.
Unemployment has risen from 8.5 percent to over 20 percent, and is projected to be at 15.5 percent at the end of 2013.
For an alternative to current pro-cyclical policies, we consider two versions of a continued fiscal stimulus, amounting to 3.9 percent of GDP over the next two years, as compared to the baseline scenario.
In the first alternative, the European Central Bank (ECB) buys debt equal to 4 percent of GDP annually over two years. This would be done with an agreement to refund the interest payments on the debt to the Spanish government.
Although the ECB and European authorities - which currently includes the IMF for these decisions - would be unlikely to carry out this policy, it is important to illustrate because it shows that there is a simple, feasible alternative to present policies that does not lead to an unsustainable debt burden. In this case, the net debt-to-GDP ratio increases to just 60.5 percent of GDP in 2020, as compared to 64.3 percent of GDP in the baseline scenario based on the government's projections.
The feasibility of such an approach must be emphasized. The U.S. Federal Reserve has added more than one trillion dollars to its balance sheet - thus more than doubling it - since the U.S. recession began. There has been no threat to inflation resulting from this money creation. The Bank of Japan has financed trillions of dollars of debt since the 1990s by creating money, with the result that there is a more than 100 percentage point (of GDP) difference between the government's gross and net debt; and yet inflation has been extremely low in Japan over the past 20 years and sometimes negative. Consumer price inflation in Europe is currently at about one percent.
In the second alternative, the continued stimulus is the same size but is financed through regular borrowing, rather than money creation by the ECB as described above. In this scenario the net debt is significantly higher, increasing to 68.3 percent of GDP by 2020. It is worth noting, however, that this is just four percentage points higher than the government's baseline scenario.
The government currently plans budget cuts and tax increases, which it projects will stabilize the gross debt-to-GDP ratio at 69 percent of GDP by 2013 (net debt at 62.4 percent). However, there are many historical examples in which growth turned out to be seriously overestimated when procyclical policies were implemented. For example, Ireland began reducing its fiscal deficit at the end of 2008. At the time, the IMF projected 1 percent growth for 2009; the actual result was negative 10 percent.
Furthermore, if the planned pro-cyclical policies result in slower growth or push the economy back into recession, this could cause the interest rate on new debt for Spain to rise. In this paper we look at three scenarios that incorporate a lower growth projection, with interest rates of 6, 7, and 8 percent on Spain's debt. In these scenarios, Spain's gross debt-to-GDP ratio rises to 85.5, 90.6, and 96.1 percent of GDP, respectively, by 2020. Net debt rises to 76.6, 81.7, and 87.2 percent of GDP, respectively.
Thus, there are plausible scenarios under which the planned pro-cyclical policies can lead to much higher debt levels than would result from the continuation of a moderate fiscal stimulus. Even from the point of view of avoiding unsustainable debt accumulation, the risk of a prolonged stagnation - combined with higher interest rates - may be much greater than the risks associated with countercyclical fiscal policy at present. And the alternative, feasible counter-cyclical policies would avoid much of the social and economic costs of lost output and prolonged high unemployment that Spain currently faces.
Keep reading...Show less
The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.
(202) 293-5380LATEST NEWS
Amid Spying Fight, House Passes Fourth Amendment Is Not For Sale Act
"As FANFSA and the 702 reauthorization move to the Senate, lawmakers in that chamber need to take a stand for the rights of people in the United States," said one advocate.
Apr 17, 2024
While applauding the U.S. House of Representatives' bipartisan passage of a bill to ensure that "law enforcement and intelligence agencies can't do an end-run around the Constitution by buying information from data brokers" on Wednesday, privacy advocates highlighted that Congress is trying to extend and expand a long-abused government spying program.
The House voted 219-199 for Fourth Amendment Is Not For Sale Act (FANFSA), which won support from 96 Democrats and 123 Republicans, including the lead sponsor, Rep. Warren Davidson (R-Ohio). Named for the constitutional amendment that protects against unreasonable searches and seizures, H.R. 4639 would close what campaigners call the data broker loophole.
"The privacy violations that flow from law enforcement entities circumventing the Fourth Amendment undermine civil liberties, free expression, and our ability to control what happens to our data," said Free Press Action policy counsel Jenna Ruddock. "These impacts affect everyone who uses digital platforms that extract our personal information any time we open a browser or visit social media and other websites—even when we go to events like demonstrations and other places with our phones revealing our locations."
"We're grateful that the House passed these vital and popular protections," she added. "The bill would prevent flagrant abuses of our privacy by government authorities in league with unscrupulous third-party data brokers. Making this legislation into law with Senate passage too would be a decisive and long-overdue action against government misuse of this clandestine business sector that traffics in our personal data for profit."
Wednesday's vote followed the House sending the Reforming Intelligence and Securing America Act to the Senate. H.R. 7888 would reauthorize Section 702 of the Foreign Intelligence Surveillance Act (FISA), which allows for warrantless spying on noncitizens abroad but also sweeps up Americans' data.
The House notably included an amendment forcing a wide range of individuals and businesses to cooperate with government spying operations but rejected an amendment that would have added a warrant requirement to the bill, which the Senate could vote on as soon as Thursday.
Noting those decisions on the FISA reauthorization legislation, Ruddock stressed that "today's vote is a victory but follows a recent loss and ongoing threat as that Section 702 bill moves to the Senate this week too."
"As FANFSA and the 702 reauthorization move to the Senate, lawmakers in that chamber need to take a stand for the rights of people in the United States," she argued. "That means passing FANFSA and reforming Section 702 authority—and prioritizing everyone's First and Fourth Amendment rights."
Jeramie Scott, senior counsel and director of the Electronic Privacy Information Center's Project on Surveillance Oversight, also praised the House's FANFSA passage on Wednesday.
"The passage of the Fourth Amendment Is Not For Sale underscores the extent to which reining in abusive warrantless surveillance is a bipartisan issue," Scott said. "We urge the Senate to take up this measure and close the data broker loophole."
Kia Hamadanchy, senior policy counsel at ACLU, similarly said Wednesday that "the bipartisan passage of this bill is a flashing warning sign to the government that if it wants our data, it must get a warrant."
Hamadanchy added that "we hope this vote puts a fire under the Senate to protect their constituents and rein in the government's warrantless surveillance of Americans, once and for all."
Sen. Ron Wyden (D-Ore.), a critic of the pending 702 bill and FANFSA's lead sponsor in the upper chamber, called the the House's Wednesday vote "a huge win for privacy" and said that "now it's time for the Senate to follow suit."
Keep ReadingShow Less
Leaked Cables Show Biden Pressuring Nations to Oppose Palestine's UN Membership
"This is the evidence that President Biden's talk about a two-state solution is nothing but idle talk," said one former Lebanese diplomat.
Apr 17, 2024
As the United Nations Security Council prepares to vote Thursday on Palestine's bid to become a full U.N. member, the Biden administration—which claims to support Palestinian statehood—is lobbying UNSC nations in an effort to wrangle enough "no" votes so that the United States can avoid resorting to a veto.
Leaked cables obtained by The Intercept show U.S. pressure on Security Council members including Malta—which currently presides over the body—and Ecuador.
While claiming that President Joe Biden backs "Palestinian aspirations for statehood," one of the cables asserts that "it remains the U.S. view that the most expeditious path toward a political horizon for the Palestinian people is in the context of a normalization agreement between Israel and its neighbors."
"We therefore urge you not to support any potential Security Council resolution recommending the admission of 'Palestine' as a U.N. member state, should such a resolution be presented to the Security Council for a decision in the coming days and weeks," the document advises.
The U.S. argument essentially is that the U.N. should not create an independent Palestinian state by fiat—even though that's precisely how the world body voted in 1947 to establish the modern state of Israel.
The renewed push for Palestine's U.N. membership comes as Israel wages a genocidal war on the Gaza Strip. The Palestinian Authority, which hasn't controlled Gaza for nearly two decades, rejected the Biden administration's requests to hold off on seeking full membership.
"We wanted the U.S. to provide a substantive alternative to U.N. recognition. They didn't," one unnamed Palestinian official toldAxios on Wednesday. "We believe full membership in the U.N. for Palestine is way overdue. We have waited more than 12 years since our initial request."
As The Intercept's Ken Klippenstein and Daniel Boguslaw noted:
Since 2011, the U.N. Security Council has rejected the Palestinian Authority's request for full member status. On April 2, the Palestinian Observer Mission to the U.N. requested that the council once again take up consideration of its membership application. According to the first State Department cable, U.N. meetings since the beginning of April suggest that Algeria, China, Guyana, Mozambique, Russia, Slovenia, Sierra Leone, and Malta support granting Palestine full membership to the U.N. It also says that France, Japan, and Korea are undecided, while the United Kingdom will likely abstain from a vote.
Along with the United States, China, France, Russia, and the United Kingdom are permanent members of the UNSC, so they also have veto power.
Ahead of Thursday's planned vote, Spain has been doing its own lobbying in Europe to build greater support for Palestinian statehood. At a joint Tuesday press conference with Spanish Prime Minister Pedro Sánchez, Slovenian Prime Minister Robert Golob said the question is "when, not if, but when is the best moment to recognize Palestine."
Belgium—which is seeking economic sanctions against Israel in response to its genocidal war on Gaza—is expected to join Spain's push for Palestinian statehood after the country's European Union presidency expires in June.
Currently, 139 of the U.N.'s 193 member states recognize Palestine as an independent state.
Israeli Prime Minister Benjamin Netanyahu—who has also claimed to support a so-called "two-state solution"—has alternately boasted about thwarting Palestinian statehood.
Critics pointed to the leaked cables as more proof of U.S. duplicity and double standards on the Israel-Palestine issue.
"This is the evidence that President Biden's talk about a two-state solution is nothing but idle talk," Massoud Maalouf, a former Lebanese ambassador to Canada, Chile, and Poland, said on social media.
Keep ReadingShow Less
Database Exposes 'Illicit Network Undermining Democracy Around the World'
Yanis Varoufakis hailed the effort as "a treasure chest of well-researched reports on how the reactionaries of the world unite."
Apr 17, 2024
"Coups. Assassinations. Riots. Detentions. Disinformation. We know the tactics that have been deployed to undermine our democracies. But who is behind them?"
Progressive International (PI) asks and answers this and other questions with an extensive new database published Wednesday that connects the dots in what the leftist group calls the "Reactionary International"—a loose global network of right-wing leaders and organizations working to subvert democratic institutions.
PI calls it an "illicit network undermining democracy around the world."
"Today is a mask-off moment for the Reactionary International and the parties, politicians, judges, journalists, foundations, think tanks, tech platforms, NGOs, activists, financiers, and entrepreneurs that comprise it," PI said.
"After a year of preparation, we finally open the doors to our new research consortium, exposing the global network of reactionary forces that corrode our democracies, destroy our planet, and drive us closer to world war," the group added.
"The twin insurrections at the U.S. Capitol in 2021 and BrasÃlia's Three Powers Plaza in 2023 left no doubt about the international coordination of reactionary forces," PI argued. "Yet far too little is known about the entities of this network, their sources of financing, and their institutional allies operating inside our political systems."
Ultimately, PI aims to "support democratic systems to become more resilient to their insidious tactics."
From leaders like Hungarian Prime Minister Viktor Orbán, Indian Prime Minister Narendra Modi, and former U.S. President Donald Trump—the presumptive 2024 Republican presidential nominee—to evangelical Christian groups influencing laws in African countries criminalizing LGBTQ+ people and tech companies empowering ubiquitous state surveillance, Reactionary International is a who's-who of the world's right-wing forces.
A cursory search of the database's contents shows users can:
- Learn about Israel's NSO, Rayzone, and Team Jorge, and how a team of Tel Aviv tech entrepreneurs fuel unrest in Latin America;
- Meet the Grey Wolves, Turkey's roving death squad with links to President Recep Tayyip ErdoÄŸan and the ethno-nationalists in his governing coalition; and
- Explore the global network of the Falun Gong, its Trump-connected media outlet The Epoch Times, and its traveling dance troupe known as Shen Yun.
Yanis Varoufakis, a PI member and secretary-general of the left-wing Democracy in Europe Movement 2025, called the database "a treasure chest of well-researched reports on how the reactionaries of the world unite."
PI invites the public to contribute to the database.
"Together, we will not only name, shame, and expose the forces of the far right—but also dismantle their network of complicity," the group said.
Keep ReadingShow Less
Most Popular