In Oscar Wilde’s Importance of Being Earnest, Lady Bracknell memorably remarks that: “To lose one parent… may be regarded as a misfortune; to lose both looks like carelessness.” The Euro-zone’s need to rescue three of its members (Greece, Ireland and Portugal) with three others increasingly eyed with varying degrees of concern (Spain, Belgium and Italy) smacks of institutionalised incompetence. snip
In Greece, the austerity program has led to a deep recession with Gross Domestic Product (“GDP”) falling by 4.5% in 2010 and forecast to fall by over 3.0% in 2011, a result worse than the IMF plan forecast. Unemployment, currently around 15%, is expected to rise further. Greek public finances have deteriorated as tax revenues have fallen faster than government spending. The 2009 budget deficit was revised from 13.6% of GDP to 15.4% and public debt went from 115% of GDP to 127%. Slow progress means that the 2010 budget deficit came in at 10.5% of GDP, against a target of 8.1%. Debt is now close to 145% of GDP, a level above that expected to be reached by 2013 under the EU/ IMF “rescue” plan.
Despite some progress, structural reforms are proving difficult and slow to implement. A plan to privatise Euro 50 billion of assets looks optimistic, with a number of even Euro 15 billion looking difficult to achieve.
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Ireland’s initial self imposed and subsequently EU mandated austerity has had similar effects to that in Greece. GDP has fallen by around 20% from its highest point and unemployment is in the mid-teens. According to optimistic commentators, living standards have deteriorated only to the levels of the early 2000s. Emigration out of Ireland has risen, reversing the trend of recent years.
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The problems faced by the troubled peripheral economies include low rates of growth and high levels of indebtedness with rising debt servicing costs. The combination of reduction of government spending and higher taxes is literally strangling these economies. The austerity programs prescribed by the economic automatons of the EU, ECB and IMF, as a condition of the bailouts, reinforce this pernicious slide into economic oblivion.
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