Lapavitsas calls Greece’s condition “nonsense economics. It’s absurd. It’s absolutely absurd….This is the economics of the madhouse. What is happening now is that everything is going to get even worse.”
Bona Fide Eurozone Crisis
by Stephen Lendman
Economist Jack Rasmus appears regularly on the Progressive Radio News Hour. He calls Eurozone conditions today “a bona fide crisis.”
It’s threefold, he says. What first affected sovereign debt became a banking crisis. Both reflect two sides of the same coin. Regional recession followed. All economic sectors are affected. They feed off and exacerbate each other.
Policy measures tried so far failed. Fundamental change is key. Without it, expect Eurozone countries to slide deeper into debt. A banking crash will follow. Protracted recessions will affect other countries.
Britain’s sinking deeper into double-dip trouble. All 27 EU countries are affected. So are others globally. Visible slowing affects America, China, India, Brazil, and other more vulnerable states.
Manufacturing began contracting in 2011. In 2012, it gained momentum. Eurozone countries are the epicenter of what’s spreading globally.
Crisis conditions didn’t end in 2009. Stabilization was temporary. Fundamental problems fester. They’ve metastasized to other countries.
To avoid debt defaults, troubled nations dug deeper holes. They borrowed more to meet payment obligations. They restructured old debt without fixing core problems. They imposed austerity when stimulus is needed.
They raised taxes, reduced spending, laid off public workers, cut pay and benefits, and sold off government assets. Instead of alleviating problems, they’ve grown.
Periphery economies are most troubled. Northern EU nations and banks are lenders of last resort. Germany bears the greatest burden. At issue is for how long.
Stronger economies loan to ensure their banks get paid and creditors aren’t harmed. Their outstanding loans are huge. Failure to service them assures huge losses or worse.
As conditions fester and grow, lenders of last resort may become borrowers. Who’ll help them when all economies are troubled. Currently, in fact, cumulative government debt way exceeds available resources.
If core EU countries and central banks let the ECB usurp government lending authority, sovereign debt holders face stiff haircuts. Eventually it’s coming. Conditions are worsening, not improving.
Recession means less tax revenues. Borrowing increases to meet debt obligations. Austerity weakens economies further. A downward cycle feeds on itself. Other countries may end up like Greece.
Economist Costas Lapavitsas’ new book discusses “Crisis in the Eurozone.” Greece is getting worse in real terms, he says. Continued cuts follow previous ones. Its huge debt as a percent of GDP gets harder to service.
More wage, pensions, and other benefit cuts are coming. By 2014, another 150,000 civil servants will be fired. Policies this severe are absurd. Instead of alleviating trouble, it’s increasing.
Greece is in deep depression. It’s the worst in its history. Its economy declined five straight years. National income contracted 20%. Unemployment approaches 25%. Youth unemployment is double that amount.
Leading business indicators are all bad. Meeting budget targets is suicidal. Ordinary Greeks have been devastated. Everything keeps heading south. On top of prior forced cuts, additional ones are mandated.
Two years ago, then Greek Finance Minister George Papaconstantinou said Greece won’t need more painful cuts. Recession will be deepest in 2010, he claimed. Thereafter, expect gradual recovery. “I remain optimistic and believe we will recover fast.”
Instead, unemployment rose another 10%. GDP fell by the same amount. Greece’s debt burden keeps rising. Policies failed dismally. Crisis conditions are worse than ever heading south and spreading across peripheral and core Europe.
To service debt, Greece is being dismantled and destroyed. It’s on a collision course with reality. Major parties said they’d renegotiate better terms. Instead they surrendered to German and French demands.
They’ll have to answer to people they betrayed. They’re suffering. They’re struggling to survive. Essentials they rely on are disappearing. Their futures are grim. How long they’ll take this, who knows. At some point they’ll rebel.
They better or watch conditions deteriorate not only beyond what’s tolerable but what’s harsh enough to spark revolution.
Lapavitsas calls current conditions “scorched earth,” “an absolute disaster,” an economy that’s “prostrate,” unprecedented and getting worse. Discussions are ongoing about how to rise from the ashes.
The moment of truth draws closer. Other troubled Eurozone economies face their own days of reckoning. So does Germany. It’s on the hook for endless billions in euro aid.
Good money is going down a black hole. Failure to supply it means forced public sector creditor haircuts. They’re unavailable sooner or later.
Troubled Spain also keeps worsening. Revised data contracted more than previously reported. Sovereign debt approaches unmanageable levels. Portugal looks worse.
Five years after crisis conditions erupted, all levels of society across most industrialized countries are worse off than earlier. Debt gets more unmanageable. Servicing costs keep rising.
Among all OECD countries, sovereign debt exploded from 73% of GDP to 108% next year. It took the prior 15 years to go from 64 – 73%. Economists call this fiscal insanity.
Economists Carmen Reinhart and Kenneth Rogoff say debt matters. Delaying resolution assures tougher times. Drawing lessons from history shows how little was learned. An 80% or higher debt-to-GDP ratio represents a dangerous tipping point, they believe.
Failure to institute structural reforms brought Japan 23 years of stagnation. Europe and America face similar conditions. Delaying resolution means turning crises into disasters.
Pipers get paid. It can be now or much more later. Imagine another decade or two of deteriorating bad news. Imagine public anger at a breaking point.
Imagine central bank policies becoming increasingly less effective. They’re pushing on a string more than stimulating growth. As a result, they’re relying more on verbal intervention. Promises substitute for action.
Bundesbank president Jens Weidmann calls ECB sovereign bond buying dangerous. Germany shows growing unease five years into crisis conditions. Scrambling to prevent contagion isn’t working.
Repeated claims are heard about economic conditions improving. Reality shows otherwise. Europe’s crisis is far from over. A greater storm looms. Eventual defaults look certain. So does an eventual Eurozone breakup. From inception, it was an idea doomed to fail.
Systemic risk grows. No country is immune. Economist Jack Rasmus believes China’s heading for a hard landing. With Europe going down and America weakening, it’ll be harder.
Perhaps next year all pretense ends. Coverup may no longer work. Hard times may be too hard to hide. Watch out.
Stephen Lendman lives in Chicago and can be reached at firstname.lastname@example.org.
His new book is titled “How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War”
Visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.