Austerity Is Not Working

Austerity is not working In 2007, the subprime mortgage industry in the United States collapsed, bringing on a credit crunch and a recession on a global scale. The European sovereign-debt crisis followed and, some thinkers argue, the mess must be resolved through austerity measures. But something isn't right. In April 2012, a 77-year-old retired pharmacist shot himself in the chest during rush hour on Athens' Constitution Square to protest the harsh conditions brought on by austerity. He is just one in a wave of suicides in austerity-affected countries like Italy and Greece. Is austerity not working, or is it working just as it's supposed to: bringing countries to their financial knees so bankers can remake them from the ground up? How austerity works Fiscal discipline to get balanced budgets (revenues equal expenditure) Who is pulling the strings Budget cuts by slashing government services: cutting government jobs and benefits (pensions, education, health care) The bankers and the wealthy are exploiting the crisis by buying cheap companies, public services and Higher taxes for the middle class resources. Politicians use our fears to increase control over society. their power The ruling elite of bankers, politicians and unelected technocrats at the IMF and European Union tells us that the blame for this crisis lies with the "excessive cost of statehood," not with the financial sector's reckless Privatize state-owned enterprises and utilities gambling. Deregulate business by reducing government's role and allowing markets greater freedom Ways out There are basically four ways out of a financial crisis. You can: Make firing easier by reducing redundancy pay and relaxing redundancy rules · Inflate, print money; · Deflate, reduce your costs, wages and prices (austerity); · If you have an independent exchange rate, devalue your currency; · Default. It is difficult to justify why people are getting less when the blame for the crisis lies with someone who got a lot and is still getting more. Increase retirement age to reduce state pension budgets Lessons from the Lost Decade in Latin America Between 1970 and 1980, Latin America's external debt increased from US$27 billion to US$231 billion. When international liquidity dried up and governments could not service their debts, they sought help from the IMF. The IMF provided huge bailout loans, but imposed harsh structural adjustment policies. Recipe for destruction: Shrinking economy leads to shrinking govenment Recipe for "recovery": revenue The economic and social consequences: · Higher unemployment requires more benefits Governments have few options in a crisis, but to sell of or privatize their GDP per capita, investment ratios, and real salaries experienced a dramatic decline commons. · Debt to GDP ratio explodes China and Qatar are already heavily "invested" in Greece's infrastructure. · Quality of life deteriorated · Social unrest follows · The gap between the rich and poor increased Austerity fiasco in figures Debt-to-GDP Ratio Deficit-to-GDP Ratio GDP percentage change from previous year Unemployment rate 160 4 20 140 -6 17 120 -12 14 100 -2 11 80 -24 -4 60 -30 -6 40 -36 -8 08 09 10 11 08 09 10 11 08 09 10 11 08 09 10 11 Germany - UK France - Italy Spain Greece Portugal - Ireland Timeline of an epic fail (Eurozone data) 85.3 85.3 79.9 79.9 70.1 70.1 68.4 66.2 66.2 Debt-to-GDP ratio -0.6 -2.1 -2.1 Deficit-to-GDP ratio -4.1 -4.1 -6.4 -6.4 -6.2 -6.2 2.7 2.0 1.9 1.6 0.3 1.3 GDP percentage change from previous year -2.0 -2.1 -4.9 9.8 10.0 10.1 9.9 10.1 9.1 7.5 7.6 8.0 Unemployment rate 2007 August 2008 December 2009 Apríl 2008 September The European Wall Street Central Bank bank Lehman 2010 2010 2011 2011 2009 December May November May September EU leaders The EU orders France, Spain, the Irish Republic and Greece to amounting to reduce their budget deficits EU and IMF Eurozone and Spain passes agree to a bailout package to the Irish Republic. Greece Eurozone admits that its debt has the IMF agree reached 3obn on a bailout IMF approve a bailout for Portugal. members and a constitu- agree on a stimulus plan to help boost European growth following the global financial Brothers pumps billions of tional amendment collapses. euro into the banking market in an to add in a "golden rule," keeping future budget deficits to a strict limit. euro, package to rescue 113% of GDP -- nearly double the Greece. effort to improve liquidity US Federal Reserve, Bank of Canada crisis. eurozone limit of 60%. and Bank of Japan also begin to intervene. (visual ly Sources: Eurostat BBC News | Business