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The rate at
which the majority of the
eurozone is descending into insolvency is accelerating. The rescue
package for Spanish banks,
which appears to have
been provisionally set at
a figure designed to impress the markets, hardly even produced
a dead-cat bounce. All it has achieved is to draw attention yet again to the helplessness of the authorities
in dealing with multiple debt-traps. So what is the answer?
It depends
on the purpose behind the
question. If it is to seek a genuine solution, then the answer is to cut public spending rigorously in all
countries that depend on markets to fund budget deficits or to roll over existing
debts. Only a convincing budget surplus is going to lead to falling borrowing costs. The objection
to this solution is partly political and partly on the grounds of neoclassical
economic prejudice. The
former persists in placing
social objectives above economic
objectives, while the latter has been convincingly proved to be wrong. Otherwise,
please talk us through
how a government actually
knows best to kick-start
an economy into recovery, without ignoring the accumulation of past
evidence. Explain why it is
that those countries, driven by the consumption so loved by Keynesians
and monetarists alike,
have turned into
basket-cases, while economies
driven by a savings
culture persistently confound
all neoclassical theory
by making their citizens better off, in every case.
The answer
is that government intervention is destructive.
Taxation and regulation are the tools
by which government disrupts the primary social function of humans exchanging their labour for mutual benefit. Government is no substitute: its desire, consciously
or unconsciously, is to
control people’s lives
for its own social
objectives. This is the motivation behind the destruction of savings
and their replacement by an accumulation of debt; and for the government itself, there are mounting future liabilities. Reversing an accumulation of past
interventions, which is necessary if a country’s
fortunes are to be improved
sufficiently to escape complete
bankruptcy, goes counter to every reason a modern politician enters his trade.
So it is more likely that the purpose behind the question posed is to find a solution without cutting public spending, and if possible allowing
it even to increase. For this reason, Keynesians and monetarists continue to be employed despite their abysmal record. So an
alternative to facing up to reality will be found,
and the clue, as Sherlock Holmes observed, is in the dog that did not bark in the night.
Despite signs from everywhere that major economies are stalling, it has been odd that the major central banks have not indulged in more
quantitative easing. One could
argue with some conviction
that this is because it
has not had the desired effect, and that for one
country to do so would risk undermining its currency. But there is possibly
an alternative reason: that
the major central banks are watching
the European crisis with the growing realisation that the eurozone is about to crash with horrible consequences for
all. The only, final, solution will
be a co-ordinated round
of multiple quantitative easings, joined in by the European
Central Bank, when the outcome
without it would obviously be so dire that
not even Germany can object.
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