International Forecaster Weekly

European Bloc Balks Over Austerity

  Some European nations (including Italy, France and perhaps Spain) have become "Greece-i-fied" in that they reject the idea of personal or national responsibility.  They believe that they should be entitled to party hearty at someone else's expense.

Alfred Adask | November 1, 2014

The New York Times reported in "Bloc in Europe Starts to Balk Over Austerity" that: "European leaders arrived in Milan for a summit meeting . . . despite gloomy financial news this week of stock markets tumbling and borrowing costs shooting up . . .  In past years, theeurozone nations buckled under to German demands to slash budget deficits and roll back public services, and then watched in dismay as unemployment rates shot into the double digits and growth collapsed. Now, France, Italy and the European Central Bank (ECB) have coalesced into a bloc against Germany, and they are insisting that Berlin change course.

 "The divisions between Europe's leaders, at a moment when unity would seem critical,   is one reason the markets are rattled-as well as the fact that policy makers still have not found a tool to revive growth in the face of staggering public debt." 

            *  First, what does Germany mean by "austerity"?  It means governments (and individuals) being forced to live within their means.  Pay existing debt.  Going into no more debt.  No more borrowing.  No more trying to live on credit in the national equivalent of a man using his MasterCard to pay off his VISA to pay off his American Express. 

            Critics describe the need to live within your means as "austerity" and make is sound draconian.  It's not.  It's simply a reasonable recommendation, demand or even inevitability that compels us all to live within our means.  

            *  Second, "divisions between Europe's leaders" reported by the New York Times aren't between nations, per se, but rather between systems of values

            Germany says people need to work hard, spend less than they earn, save and invest. Germany (which has prospered in large measure from a strong work ethic and inclination to produce and save) says the other nations must behave responsibly.

            This is the fundamental idea behind "austerity":  each individual must work and pay his own bills; each generation must work to pay its own bills; each nation must work to pay its own bills. By "work," they mean productive work-not just make-work in some government bureaucracy-work that actually produces some tangible thing that is desired and valued by the public in the free market.

            "Austerity":  each nation and individual should be responsible for his own bills.

            Some European nations (including Italy, France and perhaps Spain) have become "Greece-i-fied" in that they reject the idea of personal or national responsibility.  They believe that they should be entitled to party hearty at someone else's expense.  They want an easy credit, easy money, high inflation monetary system that will allow them to spend currency that they haven't actually earned to live the "good life".  These nations have embraced a "welfare mentality" by which they feel "entitled" to live irresponsibly and on the basis of someone else's work-or at least on the basis of someone else's (ECB's) creation of fiat currency. 

            Germany (a producer/creditor nation) won't lend any more money to Greece, Italy and France (consumer/debtor nations) at "easy money" rates.  The debtor nations are demanding that Germany give them something for nothing.  The resulting "divisions" between debtors and creditors won't be easily resolved. 

 *  Third, what's caused the EU's economy to "stagger"? 

            A:  According to the New York Times article, an enormous "public" or more generally, "government" debt.

            Q:  Why did the EU have so much debt?

            A: To allow liberal politicians to win election by persuading voters that they're "entitled" to live on welfare and/or subsidies provided by government.

            What we're seeing in the EU is democracy in action-exactly as once described by Elmer t. Peterson: 

 "A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury.  After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy." 

Just as Mr. Peterson warned, nations that adopt democracy inevitably begin to vote themselves large, unearned subsidies.  Greece, Italy ,France-and the United States-have embraced democracy and reached the moment when, instead of working for a living, they vote for politicians who'll provide "free" welfare and subsidies.  If Mr. Peterson was right, the national economies of a number of western "democracies" are in the verge of collapse due to "loose fiscal policy" and there's a dictator in our future.

            For example, in France laws have been in place for over a decade to encourage 35-hour workweeks and 1-hour lunches.  The French love it.  Like many Americans, they believe they have a moral right to however much credit is required to "shop 'til they drop".  They believe that their desire to consume entitles them to demand or even steal all they need from the members of society who can produce.

            That attitude . . . that system of values . . . is being currently challenged in the EU by German notions of "austerity".  That challenge is being described as a "division" between the European "leaders" who believe in "austerity" (responsibility) and "consumerism" based on credit, inflation and leaving the bills to someone else to pay.  This "division" is really a conflict in values between consumers/debtors and producers/creditors.

            *  The EU's capacity for economic growth has been strangled by the "staggering public debt" rung up by EU politicians and consumers.  They've reached a point where they can't borrow enough money to sustain their "party".  They're left with two unpalatable choices:  They must either go back to work and produce at least as much as they spend, or they must starve.  

            The debtor nations (Greece, Italy and France) who've nearly bankrupted themselves by spending most of their savings and exhausting much of their credit.  These debtor-nations are therefore trying to persuade some other productive fool (Germany) into providing more credit and/or welfare/subsidies to allow the debtors to continue to "party".  

            The "consumer" nations criticize Germany for advocating "austerity" (living within their means). Germany criticizes the "consumers" for being irresponsible, immoral and perhaps even irrational in their insistence that they should be entitled to spend other people's money.

            I'm betting that Germany won't play the fool and allow itself to be conned into supporting the parasites who insist on their right to live on credit.   I'm betting that Germany will insist that the debtor nations relearn the need to be self-supporting by means of individual work ethic and personal productivity. 

            If my bet is right, the EU is headed into chaos.  There'll be no easy reconciliation between the needs of the consumers/debtors with the values of the producers/creditors.  In the end, the consumers/debtors will have to either go back to work or starve. 

            The EU is on the verge of running out of "free lunches".

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