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Subject: Anti-austerity strikes sweep southern Europe rss

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John
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Anti-austerity strikes sweep southern Europe the U.S.

http://news.yahoo.com/anti-austerity-strikes-sweep-southern-...

Is this very likely in about 10 to 15 years? soblueJust wondering.
 
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General Norris
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What is "likely to happen"?
 
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JAA1030 wrote:
Anti-austerity strikes sweep southern Europe the U.S.

http://news.yahoo.com/anti-austerity-strikes-sweep-southern-...

Is this very likely in about 10 to 15 years? soblueJust wondering.

When did the US adopt the euro?
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Doubt it. The US and the EU are fundamentally different. We both have common currencies, but the US doesn't have common budgets or common debts. If an EU country makes a bad call, the EU as a whole has to pick up the tab. If a US state makes a bad call, it may go bankrupt, but that won't affect the US or even neighboring states.
 
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Chris White
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I wonder what it will take for the ECB to wake up and realize that, at least in this particular circumstance, austerity is self-defeating and only making the problem worse.

They need to exorcise the irrelevant bogeymen of the 1920s and stop fighting the last war.
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Bojan Ramadanovic
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traininthedistance wrote:
I wonder what it will take for the ECB to wake up and realize that, at least in this particular circumstance, austerity is self-defeating and only making the problem worse.

They need to exorcise the irrelevant bogeymen of the 1920s and stop fighting the last war.


They are not fighting the last war and ECB is in a very real bind.

Situation is roughly like this:

- For diverse reasons southern countries do not have enough Euros to cover their expenses.
- Private lenders are not willing to lend to them at acceptable rates because they (reasonably) perceive significant risk of default.

Now, country that has this problem can do one or both of: default / print money with which to meet needs (at least domestically).

Default only helps you however, if you are running primary surplus - i.e. if your revenue is bigger then your expenses without taking into account interest you are paying on loans.

Spain, Greece, Cyprus, France, Portugal, Ireland and even UK all have primary deficits and therefore - even if they defaulted they would not be able to sustain their current spending with their current revenue.

Italy is only country in the whole lot which could in principle default and maintain its current (post Monti-austerity) budget without resorting to money-printing etc...

(UK is in much less trouble then the rest because private markets trust them to not default and therefore are still very much able to borrow at reasonable rates)

Given that default would not help - only remaining solutions are:

a) Austerity (i.e. trying to spend less until expenses match the revenue)
b) Increased taxation (until revenue matches expenses)
c) Borrowing from "institutions" (IMF, ECB etc...) at better terms then what private market is willing to offer
d) Printing money to meet obligations (pay salaries, pensions etc...).


Option d) is dubious under every circumstance because by printing money country is simply reducing the value of money already in circulation - thus punishing its own savers and encouraging capital outflows (people do not like to hold currency that government is prone to debauch).
It is doubly dubious when you share currency with other countries which are not facing your problem.
It would be insane for Germans to agree to wreck their own savings by allowing ECB to print Euros so that freshly printed Euros can be used by Spanish government to pay its civil servants. Logically Germany (and Netherlands, Austria etc...) will not stand for that - and would be rightly crucified by their own voters if they did - so it will not happen as long as the countries in trouble are in Euro.

Option c) suffers from the fact that the "institutions" are actually handling someone's money. What is particularly ironic is that whole bunch of that money belongs to the countries whose people have living standards significantly lower then Spain, Greece etc...
Germans are not super-keen to give preferential interest rates to the south through ECB (in effect passing money from German tax-payers to Greek civil servants) but it is even worse when you consider that places like China, India etc... are shareholders of IMF and see absolutely no reason to subsidize people who are 2-5 times richer then them. (Even a whole bunch of ECB shareholders - particularly from the east are fair bit poorer per capita then some of the countries in current need of a rescue). As a result - option c) will happen (and is happening) but will not be sufficient to resolve the entire crisis and is certainly not a complete or permanent solution.

Therefore - by elimination - there *has* to be a or b or combination of both (which is what is happening).
Problem is that a and b both damage economic growth and therefore make situation worse - there is no doubt about that (among reasonable people anyway) but to paraphrase Sherlock Holmes - when the impossible is eliminated, anything remaining (no matter how painful) becomes necessary.

Therefore - unless countries want to leave Euro and risk hyper-inflation (and default which would be necessary if not sufficient under those circumstances) with its own adverse economic impact - they simply have to do increased taxation *and* austerity *and* live with reduced economic growth and attendant reduction of living standards.
These choices would not change regardless of which government was in power. You could bring in far left or far right, clowns or anarchists or libertarians, and they would still be facing exactly same constraints.


Incidentally - this is why these strikes and protests are essentially pointless.
No matter how much governments of the afflicted states are under domestic pressure to abandon austerity - they simply can not do it, and you better believe that Germans are not suddenly decide to be more generous because there are anti-austerity protests in Athens.
They may as well protest for the government to make it sunnier and warmer in November.


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David desJardins
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bramadan wrote:
These choices would not change regardless of which government was in power. You could bring in far left or far right, clowns or anarchists or libertarians, and they would still be facing exactly same constraints.


I like most of your analysis but you did leave out confiscation as option (e). You could support the "unsustainable" for quite a while if you seized all of the wealth of the top few percent to pay for it. I think this is, by and large, what the "anti-austerity" protesters want. It might not be good policy but that doesn't make it mathematically impossible. And one can't deny that there are a lot of people (some in Greece, some not) who have become very wealthy as a result of the same policies that have created the current situation, and from a moral point of view there is no reason they shouldn't contribute heavily to any solution to the problem.
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Bojan Ramadanovic
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DaviddesJ wrote:
bramadan wrote:
These choices would not change regardless of which government was in power. You could bring in far left or far right, clowns or anarchists or libertarians, and they would still be facing exactly same constraints.


I like most of your analysis but you did leave out confiscation as option (e). You could support the "unsustainable" for quite a while if you seized all of the wealth of the top few percent to pay for it. I think this is, by and large, what the "anti-austerity" protesters want. It might not be good policy but that doesn't make it mathematically impossible. And one can't deny that there are a lot of people (some in Greece, some not) who have become very wealthy as a result of the same policies that have created the current situation, and from a moral point of view there is no reason they shouldn't contribute heavily to any solution to the problem.


It is one form of taxation.
Sure - they can do it (and are doing it to some extent). But I doubt that that is what most of the protesters want.
In most cases what they want is for the problem to go away.
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Bojan Ramadanovic
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bramadan wrote:
DaviddesJ wrote:
bramadan wrote:
These choices would not change regardless of which government was in power. You could bring in far left or far right, clowns or anarchists or libertarians, and they would still be facing exactly same constraints.


I like most of your analysis but you did leave out confiscation as option (e). You could support the "unsustainable" for quite a while if you seized all of the wealth of the top few percent to pay for it. I think this is, by and large, what the "anti-austerity" protesters want. It might not be good policy but that doesn't make it mathematically impossible. And one can't deny that there are a lot of people (some in Greece, some not) who have become very wealthy as a result of the same policies that have created the current situation, and from a moral point of view there is no reason they shouldn't contribute heavily to any solution to the problem.


It is one form of taxation.
Sure - they can do it (and are doing it to some extent). But I doubt that that is what most of the protesters wont.
In most cases what they want is for the problem to go away.


Also assuming that Greece has same wealth distribution as USA as fraction of GDP (can't be assed to find greece asset value distribution) - confiscating *entire* top 1% - assuming you do it 100% efficiently and realize all their assets at market price, *and* not damage economy in any way while doing it - would only cover their deficit hole for less then 7 years.

So yeah, they can do it... but would not really solve anything.
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David desJardins
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bramadan wrote:
Also assuming that Greece has same wealth distribution as USA as fraction of GDP (can't be assed to find greece asset value distribution) - confiscating *entire* top 1% - assuming you do it 100% efficiently and realize all their assets at market price, *and* not damage economy in any way while doing it - would only cover their deficit hole for less then 7 years.


Can you show the numbers? I'm a little surprised by that, as the assets of the top 1% of the US population would cover our rather large deficits for the next 20-30 years, I think. Where did you get the numbers for wealth?
 
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Bojan Ramadanovic
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DaviddesJ wrote:
bramadan wrote:
Also assuming that Greece has same wealth distribution as USA as fraction of GDP (can't be assed to find greece asset value distribution) - confiscating *entire* top 1% - assuming you do it 100% efficiently and realize all their assets at market price, *and* not damage economy in any way while doing it - would only cover their deficit hole for less then 7 years.


Can you show the numbers? I'm a little surprised by that, as the assets of the top 1% of the US population would cover our rather large deficits for the next 20-30 years, I think. Where did you get the numbers for wealth?


Lazy man's source:
http://en.wikipedia.org/wiki/Wealth_in_the_United_States

Says 54T total wealth, top 1% owns 34.6% of that making it 18.7T or 120% of your GDP.

Greece deficit is variously estimated at between 14% and 17% of their GDP depending on accounting (figures are notoriously unreliable) hence 6odd-8 years worth of funding deficit out of 1% wealth.

Yours is ~10% of GDP so you would last 10 years or so on the proceeds.

Which all goes to show how accumulated wealth is actually relatively small compared with annual turnover of money in developed societies.
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David desJardins
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bramadan wrote:
Says 54T total wealth, top 1% owns 34.6% of that making it 18.7T or 120% of your GDP.

Yours is ~10% of GDP so you would last 10 years or so on the proceeds.


Where did you get that from? US FY12 federal deficit was $1.089 trillion. So dividing $18.7 trillion by $1.089 trillion I get 17. And that's the whole deficit, not the primary deficit. The US could fund the primary deficit for over 20 years.

This article says that Greece's primary deficit (even given its miserable rate of tax compliance) is only 1.5% of GDP.

http://online.wsj.com/article/BT-CO-20120918-701613.html

That would mean they could fund it for 80 years, given the numbers above.
 
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Walt
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Der Spiegel online has a couple articles on the situation (in English):
The Crisis Has Yet to Hit the Wealthiest Greeks
Wealthy Greeks Still Dodging Taxes Despite Crisis
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Bojan Ramadanovic
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DaviddesJ wrote:
bramadan wrote:
Says 54T total wealth, top 1% owns 34.6% of that making it 18.7T or 120% of your GDP.

Yours is ~10% of GDP so you would last 10 years or so on the proceeds.


Where did you get that from? US FY12 federal deficit was $1.089 trillion. So dividing $18.7 trillion by $1.089 trillion I get 17. And that's the whole deficit, not the primary deficit. The US could fund the primary deficit for over 20 years.

This article says that Greece's primary deficit (even given its miserable rate of tax compliance) is only 1.5% of GDP.

http://online.wsj.com/article/BT-CO-20120918-701613.html

That would mean they could fund it for 80 years, given the numbers above.


Yes, if they default *and* expropriate they could last a while (assuming of course they maintain current level of austerity and - implausibly - that neither default nor expropriation eat into the tax base).

As for the USA - I was sloppy and looked at your deficit from 2 years ago. Now it is just 8% and change:
http://www.cfr.org/united-states/us-deficits-national-debt/p...
so you could last 15 years or so.
Longer with default of course (under same assumptions...)
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Bojan Ramadanovic
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As a matter of curiousity... do any of you know why is it so hard to find data on combined debt/deficit of states in the USA ?

To me it makes a degree of sense to add those up with federal debt - but that is all nitpicking.

EDIT:
Found it,
combined state deficit seems to be about $140bn or so, so that would be another ~1% of GDP.
Nitpicking ofcourse, but just shows that my lazy numbers were not that far off.
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For the record - I believe that orderly default is more-or-less necessary for Greece and Italy at least (and would actually be beneficial for both of them) coupled with tax rises, better tax enforcement (if such a thing is even possible there) and significant labour market liberalization.

I think "austerity" in sense of cutting public service and programs is pretty much at the limit of counter-productivity in Greece but not in the rest of the med countries.

Spain and Portugal are weird to me - I do not quite get the nature of their crisis (and youth unemployment numbers in Spain scare crap out of me). In some ways Spanish economy seems more rotten then most and I don't know what to make of it.

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bramadan wrote:
For the record - I believe that orderly default is more-or-less necessary for Greece and Italy at least (and would actually be beneficial for both of them) coupled with tax rises, better tax enforcement (if such a thing is even possible there) and significant labour market liberalization.

I think "austerity" in sense of cutting public service and programs is pretty much at the limit of counter-productivity in Greece but not in the rest of the med countries.

Spain and Portugal are weird to me - I do not quite get the nature of their crisis (and youth unemployment numbers in Spain scare crap out of me). In some ways Spanish economy seems more rotten then most and I don't know what to make of it.



Their private sector is over-leveraged, having got insanely drunk on the property bubble. Their public sector finances were fine (though that was "fine" while the inflated returns from an overheated property market were flowing into the tax coffers). But as in Ireland, when the banks got into trouble the "markets" expected the public purse to support them, then realized the private sector debt was too large for the government to guarantee. Thus a loss of "market" confidence in the entire economy. The Spanish government is borrowing from the Troika to shore up its private banks and accepting austerity terms as a condition.

I'm sure you know all this though. Sorry
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Concerning Spain, it seems to me there isn't actually much rotten per se. I'm not really knowledgeable on the topic but before the crisis the national debt was going down, the administration was running well and there were not any stock market shenanigans.

What we had, however, were politician-run banks which given the educational level of the people in power was a sure recipe for disaster. Soon disaster stuck and the terrible balance revealed

It looks like there was a domino effect when several politician-run banks (The "Cajas") were suddenly found to be in a terrible position and greatly mismanaged. Of course this caused great lack of credit and a lack of trust that prevented others from lending that credit.

There's also another reason I can see for the lack of trust and that's the spending culture of Zapatero. Zapatero had gained the support of several lobbies, like the unions or the cinema industry, by giving them subsidies after winning the elections. Cutting those subsidies would have had disastrous political results so when the crisis started looming it seems to me that Zapatero tried to coast until the end of his term with the money he had left, which quickly failed. Ignoring the problem to give it to the next president didn't sit well among capitalists and other market forces.


Those are two forces I see behind the crisis in Spain. There must be more, but I don't know what they could be. I know that beyond the subsidies and some silly projects there were no problems with the administrative budget so that's not one.




Concern Greece the problem is corruption. The parties bought votes by giving out overpayed public jobs. Moving crates in a port gives you a salary of 4000€ a month. The number of photograpic labs is limited so there's no competition. There are three times as many public workers Greece had in the 1980s. International bussiness fled the country because they couldn't work with the unions.

I think it's an unique case, nothing like the other countries IMHO.
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bramadan wrote:
traininthedistance wrote:
I wonder what it will take for the ECB to wake up and realize that, at least in this particular circumstance, austerity is self-defeating and only making the problem worse.

They need to exorcise the irrelevant bogeymen of the 1920s and stop fighting the last war.


They are not fighting the last war and ECB is in a very real bind.

Situation is roughly like this:

- For diverse reasons southern countries do not have enough Euros to cover their expenses.
- Private lenders are not willing to lend to them at acceptable rates because they (reasonably) perceive significant risk of default.

Now, country that has this problem can do one or both of: default / print money with which to meet needs (at least domestically).

Default only helps you however, if you are running primary surplus - i.e. if your revenue is bigger then your expenses without taking into account interest you are paying on loans.

Spain, Greece, Cyprus, France, Portugal, Ireland and even UK all have primary deficits and therefore - even if they defaulted they would not be able to sustain their current spending with their current revenue.

Italy is only country in the whole lot which could in principle default and maintain its current (post Monti-austerity) budget without resorting to money-printing etc...

(UK is in much less trouble then the rest because private markets trust them to not default and therefore are still very much able to borrow at reasonable rates)

Given that default would not help - only remaining solutions are:

a) Austerity (i.e. trying to spend less until expenses match the revenue)
b) Increased taxation (until revenue matches expenses)
c) Borrowing from "institutions" (IMF, ECB etc...) at better terms then what private market is willing to offer
d) Printing money to meet obligations (pay salaries, pensions etc...).


Option d) is dubious under every circumstance because by printing money country is simply reducing the value of money already in circulation - thus punishing its own savers and encouraging capital outflows (people do not like to hold currency that government is prone to debauch).
It is doubly dubious when you share currency with other countries which are not facing your problem.
It would be insane for Germans to agree to wreck their own savings by allowing ECB to print Euros so that freshly printed Euros can be used by Spanish government to pay its civil servants. Logically Germany (and Netherlands, Austria etc...) will not stand for that - and would be rightly crucified by their own voters if they did - so it will not happen as long as the countries in trouble are in Euro.

Option c) suffers from the fact that the "institutions" are actually handling someone's money. What is particularly ironic is that whole bunch of that money belongs to the countries whose people have living standards significantly lower then Spain, Greece etc...
Germans are not super-keen to give preferential interest rates to the south through ECB (in effect passing money from German tax-payers to Greek civil servants) but it is even worse when you consider that places like China, India etc... are shareholders of IMF and see absolutely no reason to subsidize people who are 2-5 times richer then them. (Even a whole bunch of ECB shareholders - particularly from the east are fair bit poorer per capita then some of the countries in current need of a rescue). As a result - option c) will happen (and is happening) but will not be sufficient to resolve the entire crisis and is certainly not a complete or permanent solution.

Therefore - by elimination - there *has* to be a or b or combination of both (which is what is happening).
Problem is that a and b both damage economic growth and therefore make situation worse - there is no doubt about that (among reasonable people anyway) but to paraphrase Sherlock Holmes - when the impossible is eliminated, anything remaining (no matter how painful) becomes necessary.

Therefore - unless countries want to leave Euro and risk hyper-inflation (and default which would be necessary if not sufficient under those circumstances) with its own adverse economic impact - they simply have to do increased taxation *and* austerity *and* live with reduced economic growth and attendant reduction of living standards.
These choices would not change regardless of which government was in power. You could bring in far left or far right, clowns or anarchists or libertarians, and they would still be facing exactly same constraints.


Incidentally - this is why these strikes and protests are essentially pointless.
No matter how much governments of the afflicted states are under domestic pressure to abandon austerity - they simply can not do it, and you better believe that Germans are not suddenly decide to be more generous because there are anti-austerity protests in Athens.
They may as well protest for the government to make it sunnier and warmer in November.




A good analysis Bojan.
 
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bramadan wrote:
traininthedistance wrote:
I wonder what it will take for the ECB to wake up and realize that, at least in this particular circumstance, austerity is self-defeating and only making the problem worse.

They need to exorcise the irrelevant bogeymen of the 1920s and stop fighting the last war.


They are not fighting the last war and ECB is in a very real bind.

Situation is roughly like this:

- For diverse reasons southern countries do not have enough Euros to cover their expenses.
- Private lenders are not willing to lend to them at acceptable rates because they (reasonably) perceive significant risk of default.

Now, country that has this problem can do one or both of: default / print money with which to meet needs (at least domestically).

Default only helps you however, if you are running primary surplus - i.e. if your revenue is bigger then your expenses without taking into account interest you are paying on loans.

Spain, Greece, Cyprus, France, Portugal, Ireland and even UK all have primary deficits and therefore - even if they defaulted they would not be able to sustain their current spending with their current revenue.


In the Greek instance a default, and switch back to the Drachma and a devaluation has been talked about as a package. This might improve their economy - attract far more tourists in the summer, agricultural exports would be more attractive etc.

However it is also problematic. A number of Greeks would open bank accounts in other EU countries and move their euros there, if they got wind of such a move (some non-Greek companies are regularly sweeping all their Greek accounts back to accounts in other, safer, EU countries already).

The default and drachma approach would be very disruptive in the short term. The flight of the euro from Greece would accentuatute that. I don't doubt that many more Greek companies would go bust, there would be even more problems on the street. It would be a very unhappy 6 months to a year and probably also result in huge political upheaval there as well. Also there would then likely be additional pressure on the next weakest country. A domino effect of countries being forced out of the euro might not be totally out of the question.
 
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In response to the OP. It's just a few protests. Some people are, understandably, upset at seeing their income evaporate and unemployment rising quickly. There are upset with their government, as they should be, even though the one in charge now is not the exact same as those that fucked up over so many years.

In any case, not much to see here. Protests happen all the time.
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bramadan wrote:
As a matter of curiousity... do any of you know why is it so hard to find data on combined debt/deficit of states in the USA ?


Because states don't have a "deficit" per se. They are required to balance their operating budgets. States issue debt but not to cover their operating expenses, they (at least in theory) only issue debt to fund capital projects. So they don't have an integrated operating and capital budget, the way the federal government does.

And, of course, capital spending makes up a much larger fraction of total state spending than it does of federal spending.
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bramadan wrote:
For the record - I believe that orderly default is more-or-less necessary for Greece and Italy at least (and would actually be beneficial for both of them) coupled with tax rises, better tax enforcement (if such a thing is even possible there) and significant labour market liberalization.


Well, if you were a Greek citizen, and this is what you wanted, and you were looking at what you were actually going to get, then you would probably be out with the anti-austerity protesters in the street, too.
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No, Spain is very, very rotten.

Spain has historically had a very high unemployment rate. Just look at unemployment in the 80s and 90s: They'd be considered a disaster in most of the civilized world. What we are seeing now is not a huge crisis, but a return to the norm, in a country that now has no stabilization mechanism.

Spain's improvements during Aznar's presidency didn't come from anything that was sane or sustainable: What he did was create a bubble that propped up Spain's finances. As houses are built, tax receipts go up, even though the one lasting thing that comes out of the whole process is just a house. But what can Spaniards do with those houses? Since they can't even pay for them, as the prices do not drop to market clearing levels, they can't even live in the houses. In essence, what we got was large amounts of malinvestment, from government and private individuals alike.

Spain's problem is cultural. It's a very low trust environment, which makes people much prefer hiring, renting and building supply networks based on social connections instead of, say, price or quality. When you rent a house to a stranger, you expect it to be ruined. Hire an employee? Expect him to do no work the minute you stop looking. Work hard for your employer? Do not expect better compensation that a worker that does less, but goes to the bar with the boss. This leads to a set of incentives that just do not work in a global marketplace. A workforce with education, but that receives little training with their employers, and thus becomes extremely inefficient. When production is inefficient, adding another worker might not make financial sense, especially when you take into account that you expect him to rob you. Therefore, you get a very depressed economy when compared to a higher trust society.

So how would I fix it? If you hand me a generalissimo hat, I'd start like this:

-Bring in at will employment. If you have a bad employee, feel free to fire him, easily and cheaply.

-Drastically lower barriers for entrepreneurship. Make it easier to create companies, and to file company taxes. Anything to foster the creation of good employers.

-Centralize many of the services that were sent down to state governments in the last decade: They are now huge, and provide large amounts of wasted effort instead of innovation. The issue is not providing too many services, but having a whole lot of elected and unelected political positions that just aren't valuable, and make working across states more expensive.

-Introduce regulations against conflicts of interest and increase transparency in the supply of government contracts. The country just can't afford that much rent seeking.
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Ed Bradley
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Euroncrowseye wrote:
Note on the UK debt:

Much of it has collateral held against it in the form of assets: A not inconsiderable sum was incurred in bailing out RBS et al, but in doing so we also acquired the companies assets in terms of balances, bonds, buildings and investments.



We inherited a teetering pile of debt that will wipe out the entire bank if it's devalued by as little as 4%. These are the bulk of the "assets" you speak of. The property portfolio isn't going to cover those losses if things go bad.

The UK public purse will never make a profit from RBS. And our liabilities for the general banking bailout have already cost £500bn. We're still liable for a total outlay of £1.2tn in the worst-case scenario.
 
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