First let me start by asking if anyone can lay the framework regarding what exactly is occuring in the E.U. I am a keen student of Austrian economics but I want to know what the issue is here and how Ireland can get out of the mess it is in from an Austro perespective. Currently, we are 100’s billions in debt (all piled on the taxpayers shoulders from the banks) - new charges coming in (basically new taxes from printing a sheet of paper to a new property tax). When will it end? And how exactly are we to get out of it?
The European government debt crisis (fall 2009 – present), explained economist Jesús Huerta de Soto, “is the direct result of credit expansion by the European banking system. In the early 2000s, credit was expanded especially in the periphery of the European Monetary Union such as in Ireland, Greece, Portugal, and Spain. Interest rates were reduced substantially by credit expansion coupled with a fall both in inflationary expectations and risk premiums. The sharp fall in inflationary expectations was caused by the prestige of the newly created European Central Bank as a copy of the Bundesbank. Risk premiums were reduced artificially due to the expected support by stronger nations. The result was an artificial boom. Asset price bubbles such as a housing bubble in Spain developed. The newly created money was primarily injected in the countries of the periphery where it financed overconsumption and malinvestments, mainly in an overextended automobile and construction sector. At the same time, the credit expansion also helped to finance and expand unsustainable welfare states.”
Given current policies across Europe, don’t expect a recovery.
We never should have joined the euro. One of the justifications for it was because it would increase trade by fixing exchange rates across trading partners. However, since our main trading partners are the UK and US this argument doesn’t make a whole lot of sense.
Also interest rates were set by the ECB with inflation targets. Because Ireland is a small economy on the periphery our need we not necessarily that of the eurozone. As a result, while the eurozones inflation wasn’t so high our’s was. We were often well above five percent. This monetary pumping led to the inflation of the property bubble. It was so outrageous that an acre of land was sold for €47m in Ballsbridge.
The governments current policies are trying to prevent property prices from falling. This is exactly the wrong thing to do. Untill prices return to fundamentals, the economy cannot recover. We also have huge problems with debt. Look up some of Constantine Gurdiev’s stuff. Although he’s not an Austrian and believes in regulation, he studied in the Chicago School of Economics, and he is very good on alot of stuff.
We have come some way, and we may be in a better position than others, but we have huge problems which have not even surfaced yet. Meanwhile, that buffoon Enda Kenny only cuts €3.6b iin his first budget when he could have easily doubled that.
For what will happen to Ireland, you only need to look at Greece and Italy. Both countries are currently run by non-elected government led by former EU officials with closes tie to big international banks (Goldman-Sachs above all) whose sole scope is to avoid a default to save the European banking system. Forget “growth” and “efficiency”, that’s their sole scope.
What does the EU want from these countries? Easy: money to keep on paying interests on the hundreds of billions of debt held by French and German banks. What’s the recipe? Like Ronald Reagan said “If it moves, tax it, if it keeps moving it regulate it”. Of course budget cuts are being contemplated but, far from cutting into the vast legions of bureaucrats (up until now all Greek promises to fire “thousands” of public employees have been as empty as an eunuch’s underpants ) they will fall on taxpayers. It’s exemplified by the Greek Minister of Health denying insulin to diabetics unless they pay cash up front. It’s exemplified by the Italian government ordering local councils to send all their money to Rome, money which should be used to resurface potholed roads or pay for heating in schools. This was the bankers’ revolution, and it happened without the usually garrulous Left saying anything about it.
When will it end? Either when people say “enough” or when the bureaucrats in Brussels will simply aknowledge their dream of a Soviet Union with well stocked shops is over. At risk of sounding like the usual cynical fart that I am, I say no chance of either happening, at least in the short run.
There’s already a popular movement in Greece which calls for immediately exiting the euro (and perhaps the EU) and defaulting on the whole of their foreign debt. That’s a sound, readily applied solution. It’s possible (I say possible, not probable) it will happen if the already doctored GDP data keep on freefalling. Once Greece has been bled dry to prop up French and German banks as long as possible it will simply be “let go”.
Italy’s predictament is much worse. It’s the third EU economy (behind Germany and France) and the third debtor nation in the world in absolute terms (behind the US and Japan). Letting it default on its debt is absolutely unacceptable for the Politburo in Brussels. Italy currently has the highest taxes in Europe, with more to come (for example an already planned VAT increase from 21% to 23% later this year) and if you think the Italians’ propension for avoiding taxes will save them, think again: according to OCSCE data tax evasion in Italy is 21,4%, very close to Germany’s 17,4%. The third EU economy is slowly grinding to a halt, both due to tax and regulatory burdens and to her ancient sins. Differently from Greece (or Finland with the now famous “No-Euro” movement) there’s no real opposition to the EU. Italians benefited immensely from the euro and will shot themselves in the head before letting it go.
Apart from the aforementioned political and ideological issues what’s preventing this crisis (in Italy, as in Ireland, as in Spain) from being resolved is there’s no will to liquidate malinvestments. In fact, as our ironically named Irish friend reminded us, efforts are not spared to keep prices from falling (perhaps to inflate GDP growth figures?). This is leading to capital being syphoned off the most productive parts of the society into non-productive endeavors, capitals which the economically-criminal ECB has been trying to replace with low interest rates for years, generating even more problems.
Although I believe that there is nothing that can realy be done. Theoretically the country could vote politicians in to power that were against the EU. I am not sure about Irish politics but in the UK we have a few parties that are against the EU. They are not major parties and due to the nature of the democratic process will never win. But I am at least glad that they exist. Does Ireland have similar political parties that run on the premises of “ireland leaving the eu”?
When countries start to leave the euro currency then ireland would be in a better position to leave.
Well both parties who are currently in power campaigned promissing to allow Anglo Irish Bank to fail and to stop paying off subordinate debt holders of all banks. Instead, they are paying €1 to people who bought bank bonds for €0.60.
There has been a big rise in independents who are generally against the bail-out, but they are also generally socialist of the worst kind. This is a shame since they are the only group who are honest, and are genuinely putting the publics interest before their own. The only other party we have is Sinn Féin, which consists of murderers and criminals, and they are also socialist, but they are sceptics the EU.
And I though the Tories were fairly anti-Europe, no? Regardless, at least you have UKIP, although some of their policies are a bit bizarre.
As Gary North rightly said the big problems are the bureaucrats. We can vote every single politician out of office but until the power of bureaucracies is undermined the situation won’t improve. What do bureaucrats fear the most? Budget cuts, especially vicious, across the board budget cuts. “Trimming fat” only results in reduced services to the citizens (see the diabetics being denied insulin) and “aimed” budget cuts are more often than not the result of one branch trying to diminish the power of another.
Question: is there a single party in Europe right now calling for sweeping budget cuts? To my knowledge only one, the German Republikaner. Despite having been around since 1948 they were recently throughly investigated by the Inquisition Bundestag Office for Political Activities, part of the German political system charged with screening the system for anyone proposing radical ideas (it was originally set up by the Allies to “hunt down” Nazis). It means somebody paid attention to what the Republikaner have been saying for decades and wanted to send a clear message: budget cuts are out of the question. It also means somebody is starting to get scared: when things were going well the bureaucrats just felt too powerful to be bothered by a bunch of bookworms.