As the FT notes this morning:
A deep rift in the ruling coalition over how much austerity Portugal can bear has plunged the country into a political crisis that threatens to undermine Lisbon's efforts to exit its €78bn bailout programme on schedule.
Pedro Passos Coelho, the prime minister, is struggling to hold his coalition together after the resignation of two high-profile ministers in less than 24 hours. But his limited options mean a snap election two years ahead of schedule cannot be ruled out.
Of course Portugal is struggling. It cannot pay its debts and austerity is making that situation worse.
As Keynes pointed out 75 years ago, the only solution to paying Portugal's debts lies within Portugal, and that is to put to work the vast number of Portuguese who are now out of work and who would, as a result, create the wealth required to clear Portugal's deficit. There is,quite literally, no other way to do this,and instinctively the people of Portugal know that. No wonder their politicians are stressed.
So what is stopping this? Firstly the hegemony of neoliberal economic thinking that subscribes to the fallacy of composition and so thinks that a national economy behaves in the same way as a domestic environment. Domestic environments can pay their debt by fixing their income whilst cutting spending to make cash available for debt servicing. Countries cannot do the same because in their case cutting spending automatically means cutting income too; within reasonable parameters one feeds directly into the other, delivering, if anything reduced cash flow capacity to pay debt.
Second, this is happening because the Germans are refusing to reinvest their surpluses into countries like Portugal and yet this process of reallocation of surpluses to poorer areas within the Eurozone even though such reallocations have always been fundamental to the creation of successful economic integration. Whilst this does not happen Portugal will suffer - as a result of the failure of political will.
Last, and perhaps most tellingly, we take no action because we think financial debt more important than human capital (that's you, me and the people of Portugal). That's wrong of course, for exactly the reasons Keynes noted. Unless we put people to work there is no way that the increase in income that is the pre-requisite of creating the capacity to repay debt when for all practical purposes sending is fixed when populations don't shrink as a result of austerity.
The result is that Portugal need not face a disaster, but it is. And what is so sad is that this is a disaster waiting to happen that need never occur.
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The post is good, as far as it goes.
The problem with these sorts of articles is in the dancing around the causes of the situation. To wit:
– Previous profligate spending (government)
– Lack of control over currency (government)
– Failure to regulate the financial system (government)
I am with Suzanne Moore of the Guardian today, government obviously does not trust us, why on earth should we trust them?
After all, it is their fault we are in the mess we are in.
But we do not have Courageous Politicians
We have small minded cowardly ones who believe the world is out to get them just as they A&E to to get the world
And that is the problem
Rodney
Respectfully, you should open the other eye.
We have an out of control financial sector which has set out to emasculate the state and the powers of the workforce. They have put supporters of their ideology into government and they have much of the media. Currencies are subject to the caprices of the market.
If your view is reduce the power of the state, rather than change its direction, then it would seem the corporations and financial sector will exploit the situation even more.
And without the product of human capital, environmental and infrastructural capital will decay and decline, thus further weakening the social capital that bonds, bridges and links us together as communities and societies, Richard. But that, of course, is not a concern of neo-liberalism, built as it is on self interest and so called animal instincts. Atomisation is the inevitable outcome.
That aside you draw attention to a fundamental point, which is that the neo-liberal project now enjoys such an unrivaled degree of hegemony that the narrative it has been able create of the equivalence of state and national economies to domestic households goes pretty much unchallenged. Indeed, as many of us know from conversations with family and friends (and in my case my barber), thanks to the likes of The Mail and The Sun, the public as a whole pretty much believe it. Depressing and disasterous for the majority. But trebles all round for the 1%
Ivan, I’m continuously amazed at how people swallow the neo-liberal lies. It is everywhere and all pervasive thus allowing Freud et al to be more and more brazen. But it surely can’t keep going, the well of anger must be filling and without an opposition in many countries it does not bode well for the future, I fear that there could be significant social unrest when boiling point is eventually reached – unless the collective torpor is deeper than I imagine. To have fought nazism…and now this!
Might the word ‘Euro’ merit a mention?
It is implicit in my second point – read it
Those whom the gods wish to destroy, they first make mad.
Not to do the thing which helps everyone, because of rigid adherence to an idea or doctrine, is both tragic and evil.
Here’s a interesting podcast on Rafael Correa, the President of Ecuador, and how he has brought his country back from the brink. As you might guess austerity wasn’t the answer…
http://fromalpha2omega.podomatic.com/entry/2013-06-22T02_33_39-07_00
John
…and while I’m at it here’s another from a recent debate in Canada titled ‘Should the rich be taxed more?’ featuring George Papandreou, Paul Krugman, Newt Gingrich and Arthur Laffer. What is really striking is the shameless, patholigical hatred neo-cons like Gingrich and Laffer hold for government of any kind. That’s what you’re up against Richard.
http://podcast.cbc.ca/mp3/podcasts/ideas_20130605_24736.mp3
John
Two points Richard:
1. You actually discussed a “creation of successful economic integration”, which I suppose I must take to mean the Euro – please correct me if I’m wrong.
What isn’t implict, or explicit or discussed in any way is whether you personally believe in the Euro project.
2. I am assuming that by “the Germans” and “their surpluses”, you mean German gov’t budget surplus – again correct me if I’m wrong. So this will be money that German citizens paid in tax, that they therefore did not get to spend themselves and which their government did not spend on domestic services. This is the money that you think should now be reinvested in Portugal.
The thing is, the German electorate simply won’t have that. There is therefore no democratic mandate for German surpluses to be reinvested as you suggest. As the democrat you tell us you are, you will appreciate this. You will also appreciate as a simple matter of fact is isn’t an option.
So given this, what would you do?
P.S. Your friend Ivan Horrocks, in amongst his blizzard of words, refers to “the neo-liberal project”. In this context he is not seriously suggesting the Euro is a neo-liberal project is he?
Of course Europe is a neoliberal project
Richard ,
I applaud you for realising that the EU is a neoliberal project .
Are there any other prominent modern-day “lefties” who you can name who also see this ?
Why is it that the vast majority of people on the left of centre can’t see it ? wishful thinking ?
From what I can see the EU is run by global corporations like pretty much everything else and they want a slice of everything . I can’t imagine global healthcare conglomerates being happy with the monopoly the NHS has . It’s prospects can’t be good in it’s current form under EU competition laws .
Ironman
As I understand it the surplus is the trading surplus (imports/exports). That money is owned by companies and individuals. So not money paid by taxpayers.
We tend to think of a country as a single entity “UK Plc” etc but the reality is different. We can say lots of Germans have a surplus and their banks have a surplus of foreign currency (both euro and non-euro)
What does one do with it? Store it up? In which case demand falls and debts rise in real burden. It is, I think, called debt deflation.
Or one spends it and creates demand. Where there are separate currencies this has the extra benefit of preventing the surplus currency from rising even more in value. This would happen to Germany if the euro collapsed.
If the UK were separate countries we would end up with a weak Northern Irish pound and stronger English pound. We don’t have ‘balance of payments problems’ between England and Wales (with a need to become ‘more competitive’)but we might have-or do have-different levels of economic activity. We try to balance this by regional aid.
For the system to be healthy, all the parts have to be healthy. Keynes saw this in the 1940s but the US, lead by Harry Dexter White at Bretton Woods were able to
force through an international system based on the dollar and one in which it is possible to pile up surpluses. This appeals to those who think in terms of profits for themselves (in internatiesonal trade surpluses should balance deficits)and blow the rest. But it creates problems-look at China’s dollar reserves.
Ironman
Thanks for referring to me as Richard’s friend. In fact, we’ve never met. I just happen to share many of his values and opinions. But anyway, and without resorting to a ‘blizzard of words’, I should point out that I’m a long time supporter of the concept of the EU and of the Euro, and there are many things the former has done that I support. But that doesn’t lessen the fact that the Euro is a neoliberal project and that a substantial amount of what comes out of the EU, in terms of policy, is similarly informed.
Agreed
It’s also overdue that we do meet
Richard
Any sensible economic integration project – and this includes the Sterling area as well as the Euro – *has* to include some redistribution from the stronger regions to the weaker ones. Failure to do this leaves the currency too strong for the weak regions, and too weak for the strong ones. It is in neither’s long-term interests to do this.
So yes, northern Europe has got to subsidise southern Europe – but so too does London and the South East of England have to subsidise the rest of the UK.
And so with the UK and countless other countries. On the fallacy of composition, I wish you could get Sheffield City Council, who like most other councils keep repeating ‘they have no choice but to cut’ then try to patronisingly justify a mantra more worn out than a one-legged ninja at an arse kicking competition by using the analogy of the city residents’ household economies in relation to government spending. Because, of course, none of us know what it’s like to have more money going out on essential living costs than is coming in…
“Of course Europe is a neo-liberal project”.
Well leaving aside that you still won’t give a straight opinion on the Euro, you are seriously going to make that claim aren’t you. So, all those opinion pieces in the Mail, the Times, the Telegraph, all their neoliberal journalists, they were never anti-Euro, that just didn’t happen. All those Tory politicians, Thatcher, Redwood, Hague, Portillo, they were never against the Euro. And Cameron hasn’t just been forced into promising a referendum on withdrawal from the EU. No, not at all .
I’m sorry, but that is simply naked dishonesty.
And now the Courageous State will show its true colours and stop this comment ever being posted. Read-writing history is the calling card of the British left, as is refusing to enter into genuine debate.
First I have replied
Second the enti EU bigotry is driven by racial nastiness, not economic logic
Third, the EU is based on the neoliberal mantra of the free movement of capital having priority over all else
Fourth I allowed your comment because small minded and I’ll informed as it is it passed moderation
Fifth, I do not guarantee the same in the future
Ironman ,
It’s true that the Conservative party is EU-scepetic – once every five years like clockwork .
A Conservative voter or supporter would have to be extremely gullible to think that the people who run that party are anti-EU when the actions as opposed to the words indicate otherwise .
And while the people of Europe are ground into the dust…their ‘fearless’leaders feel they have to lower the Financial Transactions Tax. See here: Å emeta signals FTT Rate Reduction (http://www.tax-news.com/news/emeta_Signals_FTT_Rate_Reduction____61291.html). What a joke. 🙁
Richard
1. You refer to my ‘racial nastiness’ – without a hint of evidence – and then to your moderation process in the same comment; truly fabulous.
2. You also denounce the free movement of capital in the same thread in which you argue “the Germans” should “reinvest their surpluses” in Portugal.
3. Ivan Horrocks manages to declare himself a long time supporter what he insists is a neo-liberal project: the concept of the EU and the Euro. It makes it all rather difficult to know exactly what is his opinion.
However, could we possibly come back to the subject matter of your post: Portugal. I’m afraid to say you really seem to be finding it difficult to provide straightforward expressions of your views. So let me repeat my questions:
a. What do you actually mean by “the Germans” and “reinvest” and “their surpluses”? Please don’t leave it to Ian’s or my assumptions.
b. Do you believe in the Euro? – It’s a simple question really.
c. Given the absence of any mandate for cross-subsidy from the German – or Dutch or Belgian – electorate, what exactly do you propose? Remember, you began by by declaring this the disaster that need never occur.
I was not referring to your racial nastiness. I was referring to that of the Mail et al
I am explicitly saying Germany should allow more ECB funded support for Portugal funded by the German state oe EU QE which may amount to much the same thing
I do not support the euro but believe the EU could be and on occasion has been a powerful force for good
Democratic governments are elected to decide – the mandate is being elected
Now I think it fair to say, stop wasting everyone’s time with fatuous questions
Agreed, Richard…surely if we have an area of currency union it should all be about using surpluses in a mutually supportive way…what is the point of monetary union without this? of course mutual support grates against the neo-liberal agenda of sucking the wealth out of everything so we’ve ending up with monetary union against this backdrop and we can see the results.
Ironman
As you’ve mentioned me by name again (point 3)and misunderstood my earlier comment I’d better respond. If you go back to the comment you refer to you’ll note that I was careful to say that I supported the CONCEPT of the EU and the euro. But to make my position absolutely clear a should perhaps have added that I’m not a fan of the current model, or of the direction in which the EU has been heading for some while, as this is far to driven by neo-liberal economic and social thinking. That said, there have been – and sometimes stil are – occasions when EU policy (social and environmental, for example) has been more progressive and social democratic in nature than what we would otherwise have ended up with in the UK if left to our own free-market worshiping governments. Hence my comment about supporting many things the EU has done over the years.
Agreed! Entirely
1. The mandates of governments is not fatuous or a waste of time, not in my book!
2. That mandate is never absolute, settled purely by the election of the executive. There is also consitutional law, the requirement for a plebiscite etc. And here, as a simple fact, there is no mandate from the German people.
3. ECB QE is not, simply is not “the Germans reinvesting their surpluses”.
4. We now have two commentators, Ivan Horrocks and you, delcaring your support for what you both insist is a neo-liberal “project”.
I certainly have been wasting my time haven’t I.
Yes
And you have wasted ours too
“Countries cannot do the same because in their case cutting spending automatically means cutting income too; within reasonable parameters one feeds directly into the other, delivering, if anything reduced cash flow capacity to pay debt. ”
This is not entirely true as it ignores the impact of ent imprts in the gDP equation. A country with a very open economy can cut spending on imported goods without impacting its own economy. A decision by a government to cut spending on military eqiuipment imported from overseas would have no effect.
I agree – I assumed neutrality on that
But I have made the point many times before
Personally it is one of the reason I lke some of your Green new deal ideas – an army of house insulator solves three problems – gives people jobs, reduces spending on imported energy and helps the environment. Not to mention would help the poor more, where heating costs are a greater proportion of spending and probably live in less well insulated properties.