The addiction to stupidity is amazing, and common sense ain't too common anymore. It does appear Govt's CAN do whatever they want, no matter how self destructive.
Yes, essentially. Governments are ignoring the will of their people because they believe (rightfully so, perhaps) that a collapse will occur if they do not, and a collapse will mean they will get blamed for it. Essentially what we have is that government created the mess, and continues to propagate the mess because it knows that if it does not, it will have to face judgment day on it's actions. So it hopes to prolong that day as much as it can.
France's Sarkozy threatened to exit euro MADRID (MarketWatch) -- French President Nicolas Sarkozy threatened to pull his country out of the euro zone unless other members promised to help Greece at the crucial meeting of ministers in Brussels last Friday, according to a report in Spain's El Pais. Details of the meeting were apparently revealed by Spain's prime minister, Jose Luis Rodriguez Zapatero, as he met behind closed doors with Socialist party leaders on Wednesday. An unnamed source at that meeting relayed Zapatero's account that at one point in Brussels, Sarkozy "banged his fist on the table and threatened to leave the euro, which obliged [German Chancellor] Angela Merkel to bend and reach an agreement." Another source at the meeting with Zapatero relayed that "France, Italy and Spain formed a common front against Germany and Sarkozy threatened Merkel with a break in the traditional Franco-German axis." Traders say the report has pressured the euro on Friday, which dipped to a new 17-month low under $1.2457. http://www.marketwatch.com/story/frances-sarkozy-threatened-to-exit-euro-el-pais-2010-05-14 http://www.guardian.co.uk/business/2010/may/14/nicolas-sarkozy-threatened-euro-withdrawal
Why The UK Is The Next European Country To Experience A Massive Debt Crisis Now that the Greek debt crisis has been "fixed" by a gigantic pile of more debt, many are wondering which European nation will be next to experience a massive debt crisis. Increasingly, all eyes are turning to the U.K. and their public debt that is spiraling out of control. The U.K. government's deficit is projected to be approximately 13 percent of GDP in 2010, which is even worse than Greece's 12.5 percent figure. Right now the public debt of the U.K. is "only" at 68 percent of GDP, but three years ago it was sitting at about 40 percent, so as you can see the national debt of the U.K. is absolutely exploding in size. In fact, it is now being projected that the public debt of the U.K. will exceed 100 percent of GDP within the next three years. Considering the fact that citizens of the U.K. are some of the most highly taxed people in the world already, there just is not much room for raising more revenue. So obviously there is a problem. A massive, unchecked, out of control problem that threatens to blow out the entire U.K. economy. And considering the fact that it took just about everything that Europe could muster to bail out poor little Greece, how in the world is Europe going to be able to bail out the U.K. when their debt crisis violently erupts? If Greece almost brought down the euro and the financial system of Europe, then what would a financial implosion in the U.K. do? Considering the fact that the Greek economy is approximately 16% the size of the U.K. economy, it is very sobering to think what a "Greek style" debt crisis in the U.K. would mean for the entire world. But if something is not done rapidly it will happen. Just consider the following charts.... Now how in the world do you go from a deficit that is between 2 and 3 percent of GDP in 2007 to one that is above 11 percent in 2009? That takes some serious financial mismanagement. Not only that, but as we mentioned earlier, this year the deficit is projected to be approximately 13 percent of GDP. That is a level that is catastrophic. Kornelius Purps, the fixed income director of Europe's second largest bank is very open about the fact that he believes that the U.K. is likely the next European nation that will face a very serious debt crisis.... "Britain's AAA-rating is highly at risk. The budget deficit is huge at 13% of GDP and investors are not happy. The outgoing government is inactive due to the election. There will have to be absolute cuts in public salaries or pay, but nobody is talking about that." In fact, Morgan Stanley has already warned that there is a very strong probability that some of the rating agencies may remove the U.K.'s AAA status before 2010 is over. If that happened, it would make the crisis that we just saw in Greece look like a Sunday picnic. So what must be done? Well, already world financial authorities are calling for "austerity measures" and deep budget cuts to be implemented in the U.K., but the reality is that those moves will cause deep economic pain. In fact, Bank of England governor Mervyn King recently warned that public anger over the "austerity measures" that soon must be implemented in the U.K. will be so painful that whichever party is seen as responsible will be out of power for a generation. The cold, hard reality is that the U.K. is in for economic pain in any event. Either they cut the budget and implement severe "austerity measures" which will hit people really hard economically, or they continue on the current course and risk a much worse version of what just happened in Greece. Not that the rest of the world should be gloating about what is going on in the U.K. either. The financial situation in Japan is even worse than what the U.K. is dealing with, and the United States is going to have the biggest economic downfall of them all one of these days. As we wrote about yesterday, the sad truth is that the governments of the world are rapidly running out of money and are drowning in debt. It is a gigantic mess, and the term "sovereign debt crisis" is going to pop up in the news very regularly from now on. You see, it is not just the financial systems of the U.S. and the U.K. that are broken. The entire world financial system is fundamentally flawed and is doomed to failure. Right now the central banks of the world can do their best to try to hold things together with a tsunami of debt and paper money, but they are not going to be able to keep up this balancing act forever. When it does all start coming apart and the dominoes do start falling, it is going to be a complete and total nightmare. Paper currencies around the globe will lose value at breathtaking speeds as central banks flood economies with cash in an attempt to stop the madness. But more debt and more paper never solves anything. All it does is make the long-term problems even worse. When the tipping point comes, things are going to move fast. Let's just hope that we all have a good bit more time to prepare before that happens. http://www.businessinsider.com/why-...ry-to-experience-a-massive-debt-crisis-2010-5
The UK debt is much higher than reported. One should include PFIs (Private Funding Initiatives) in the calculation of the debt burden. Check this link for more information: http://en.wikipedia.org/wiki/Private_finance_in... The private finance initiative (PFI) is a procurement method which secures private funding for public institutions in return for part-privatisation. PFI is also an operational framework which transfers responsibility, but not accountability, for the delivery of public services to private companies. PFI projects aim to deliver infrastructure on behalf of the public sector, together with the provision of associated services such as maintenance. Under PFI the private sector operates facilities as well as providing finance, so some public sector staff have their employment contracts transferred to the private sector through a process known as TUPE. Every PFI deal has its own particular characteristics. PFI contracts are currently off-balance-sheet, meaning that they do not show up as part of the national debt as measured by government statistics such as the Public Sector Borrowing Requirement (PSBR). The technical reason for this is that the government authority taking out the PFI contract pays a single charge (the 'Unitary Charge') for both the initial capital spend and the on-going maintenance and operation costs. This means that the entire contract is classed as revenue spending rather than capital spending. As a result neither the capital spend nor the long-term revenue obligation appears on the government's balance sheet. Were the total PFI liability to be shown on the UK balance sheet it would greatly increase the UK national debt. When international accounting standards are adopted this will probably result in most PFI debt being brought onto the Government's balance sheet. Even supporters of PFI have recognised that this lack of transparency is an issue. For example, in 2007 Neil Bentley, the CBI's Director of Public Services, told a conference that the CBI was keen for the government to press ahead with accounting rule changes that would put large numbers of PFI projects onto the government's books. He was concerned that accusations of "accounting tricks" were delaying PFI projects. quiz: what would be the actual public debt as a % of GDP if PFIs were included in the calculations?
I have seen estimates suggesting that various PFI projects represent approximately an additional GBP 100bn of govt liabilities. This is a relatively conservative figure.
martin you did not comment on this. I have noticed the media has not been making comments on some failings of the Greek bailout. The first one is that if the output of Greece diminishes as a result of demand reductions from fiscal constraint the ability to repay is restricted. More importantly if the output reduced there would be an inflationary gap due to shortages of goods. Normally this inflation would then compensate for the repayments costs. Inflation means the value to repay is reduced so if there is inflation the relative repayment is the same (for example output declines by ten percent and the inflation rate is ten percent (money to goods ratio has a new equilibrium), the payment has become relatively cheaper, thus taking the sting out). However as the output of Greece is related to the Euro, which is based on the overall Eurozone inflation rate and interest rate parameters are set to meet this target, the reduction in output will not create an inflationary gap to compensate for the repayment costs relative to loss in output. In short even if you do not print more money to inflate the economy, it will occur naturally through supply shock inflation as the economy stagnates. This is beneficial when paying debt because it means any lost output is compensated for by a relative (not necessarily equal but not far off) increase in the ratio of currency units. As the number of currency units is based on the Euro targets for the Eurozone the number of currency units to Greek output units will not create this natural compensation. As the Greeks cannot print money due to being in the Euro there is no way to compensate for this situation. This means if there is a reduction in output, which is quite likely as a result of less demand both from fiscal policy plus external demand, there will be a real loss.