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digging up all we can dig « Previous | |Next »
September 27, 2011

European policy makers continue to dither as a spectre of bankruptcy default and deepening poverty hangs over Greece, which has to make further spending cuts, tax rises, privatizations, wage-cuts etc. to ensure the sixth payment of €8bn.

There is no new plan (ie.,the expansion of the European Financial Stability Facility (EFSF) from €440bn to €2tn? bailout fund and an "orderly" halving of Greece's €315bn debt) --just the old plan of "temporary" financial assistance to eurozone members in difficulties. It has €440bn available and about €142bn of this has been used to prop up Greece, Ireland and Portugal. The proposed expansion looks like a sovereign bailout device but is really a “save the big French and German banks” vehicle.


The eurozone’s problems are now too big for the eurozone alone to deal with, given the continuation of world's major economies are heading for a "massive jobs shortfall" over next year. There already has been 20m jobs disappear since the financial crisis in 2008 and the most likely outcome is a protracted period of low, slow growth and a slow decline in living standards and wealth in the US and Europe.

As Paul Krugman reminds us the core reason is that the above financial measures fail to address the underlying problem of German’s high level of exports within the Eurozone, and reliance on austerity rather than growth strategies (and writedowns) to help reduce debt level in periphery countries:

Think of it this way: private demand in the debtor countries has plunged with the end of the debt-financed boom. Meanwhile, public-sector spending is also being sharply reduced by austerity programs. So where are jobs and growth supposed to come from? The answer has to be exports, mainly to other European countries. But exports can’t boom if creditor countries are also implementing austerity policies, quite possibly pushing Europe as a whole back into recession...I see no sign at all that European policy elites are ready to rethink their hard-money-and-austerity dogma.

In a global economy Australia is not immune from the problems outside its borders. For Australian neo-liberals the worry continues to be the budget surplus and what they claim is the looming fiscal car crash due to the failure to get the government spendathon under control. In The Australian, for example, Michael Stutchbury says:
Mining boom mark II is not generating the same surge of tax revenue, particularly from company tax. And the renewed sharemarket sell-off will undermine the forecast recovery in capital gain tax.This means the budget will be in serious trouble if China's economy weakens significantly and our record high terms of trade corrects sharply, as it usually does. It probably will require a budget hard landing to shock the system into this given how our China boom has fuelled a political culture in which the answer to just about every problem is spending more taxpayers' money.

The talking point is the old one: Labor is a wasteful government and a poor manager of the economy. It's a wonder Stutchbury didn't go on about the proposed price on carbon destroying the Australian economy at a time of global economic crisis.

The Australian neo-liberals are into austerity politics just like their European and US counterparts. Although they talk in terms of 'expansionary fiscal contraction’ or 'expansionary austerity' they have no plan for growth other than a mining boom based on digging up all we can dig and getting the budget into surplus through harsh cuts in government spending.

You rarely hear them talk about life after the mining boom in the sense of Australia making the shift to advanced, high-tech manufacturing, an information economy or a greened economy. For them Australia's economic future is limited to being China’s quarry.

| Posted by Gary Sauer-Thompson at 10:24 AM | | Comments (3)


the economy is slowing down, and that is going to crimp tax revenues at the very time the Government needs them to pick up.The budget deficit appears to be widening.

The politics of the Gillard Government’s economic policy has been built around a rapid return to surplus next year, after the comparatively small deficits of 2008-11 as the government spent to keep the economy out of recession. If they fail to achieve it it will be another broken promise.

The neo-liberals argue that lots of austerity can actually stimulate private consumption and investment. The concept is "expansionary fiscal contraction" or "expansionary austerity".

The phrase is an oxymoron since fiscal contraction generally makes things worse.

The ILO says that the the 20 million jobs lost since 2008 will rise to 40 million next year because the austerity policies mean less economic growth in the developed countries.