"Austerity is not the answer"

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"Austerity is not the answer" by Mind Map: "Austerity is not the answer"

1. Greece

1.1. Arg

1.1.1. Agree The maths is simple - countries, foremost Greece, but also others, need to make great reforms; but as the overall economic situation fails to revive, it gets harder and harder to balance their books; so their interest costs go up and up, which makes it harder and harder to balance their books. The rich North needs to show solidarity and support the poor South to allow it to borrow more cheaply

1.1.2. Disagree You need to take a reality check: Greece is living beyond its means, and that may be the case of a few others too. There is the basic difference between a liquidity crisis - where a bit less austerity helps - and a basic solvency crisis - where you have to change the way you do things profoundly to get back on track. Greece is in the latter situation. What it needs today it tough love, not another renegotiated bail-out.

1.1.3. Agree But wait. As you talk of tough love, try also to picture the women who won't have a midwife present at birth, the patients who'll die for lack of drugs, the elderly who'll end their days squalidly and alone, the children who won't get the food, basic medicine and education they need. There comes a point where you have to let solidarity over-ride economic reality - especially when the people who are to blame are the politicians who've spent a decade and more abusing the system, not the ordinary people now suffering. If the European Union means anything, it has got to mean helping out fellow Europeans when they are truly in the dumps, as the Greeks are today. Professor Erik Bergloff on how the crisis has hit ordinary people in Central and Eastern Europe

1.1.4. Disagree Actually, if you look at the Greek bail-out packages, it is clear that they already are about helping the Greeks. The EFSF, IMI and ECB are not saying "get rid of your deficit and we'll give you the next bit of money". They're saying make reforms to your pensions, your civil service, your tax collection rates and all that - this is what you really need to do, and then you'll get the next bit of money. Anton La Guardia on whether structural reforms of the kind asked for are pro-growth

1.1.5. Agree But what about democracy? Greek voters - and French ones too, by the way - have just elected in anti-austerity, pro-growth governments. In democracies, people are sovereign. If they all come together and say "no more austerity", then that is the democratically legitimate outcome, no? What's more, they're right, aren't they, that the Greeks aren't to blame? There was a massive failure of leadership, and not just in Greece, but all over the world: the elites that were meant to regulate finance didn't; they found it convenient to turn a blind eye... Professor Erik Jones - democracy and currency unions Ian Goldin on who's to blame

1.1.6. Disagree The blame game is one thing, what todo next is another. Democracies need a reality principle. And that's what balancing a budget is all about. It would be fine if markets were prepared to lend to Greece for it to pursue its democratic agenda. But they're not. So they're going to have to live within their means one way or another. Daniel Gros on what the interest rates are actully telling us about WHERE austerity ought to end

1.1.7. Agree But you forget Europe in all this. If a union means anything, it means a mutual-help club. The politics are clear: Greeks feel resentful of Brussels as the undemocratic whip; they are angry with their own political class that led them into this; they are voting in anti-Europe and often xenophobic parties. Hungary, by the way, has done just the same thing. All over Southern Europe, voters will turn against the North that is trying to rule over them. The whole of the European construction is at stake here. It can't be worth tough-loving the miscreants to the point where it destroys Europe. Look, if Greece is pushed to exit, it will be catastrophic for the financial system of the whole of Europe. UK included. Banks will have to recognise losses; they will have to reduce lending even further; some may go under; the worry of that will create bank runs. All this for some Germanic point of principle? Julian Callow on the financial consequences of letting Greece default Professor Erik Bergloff on anti-EU sentiment in Central and Eastern Europe Professor Erik Jones on the logic and politics of currency unions

1.1.8. Disagree This crisis is indeed terribly important for Europe. The way it solves the crisis will determine the kind of Europe we have for a long time to come. Now, it is quite true that Brussels currently has a democratic deficit. And if the quid pro quo for tough love were to be democratic reform in Brussels, that would be great. But note that it is pretty unlikely that any form of democratic union would want to bankroll any budget miscreants. You can see how long that kind of political institution would last. Yes, more democracy. No to less austerity. If there is one country, looking at Europe, that has made a success of economic management, surely it is Germany. If Europe is about taking the best from each of us and allowing all to benefit, surely a bit of German economic discipline is a good place to start Dehesa Daniel Gros La Guardia

2. Rest of Europe

2.1. Agree

2.1.1. What's the point of stifling growth if at it means is longer unemployment queues and larger borrowing requirements? Why not do the borrowing first and get growth going? Professor Ian Goldin

2.2. Disagree

2.2.1. But you can only currently borrow at decent rates if lenders are convinced that you're really committed to serious action on your primary government deficits. If you start trying to spend your way out of recession, lenders will doubt that, your borrowing costs will increase dramatically, and you'll be much worse off than before in terms of ability to service debt Daniel Gros

2.3. Agree

2.3.1. But that assumes that lenders are basically irrational. Why should they be? Look, surely the thing to do is to increase productive investment - infrastructure, teaching & skills investment - ("supply-side Keynesianism") - while interest rates are so low, and to stop if interest rates start to rise Professor Erik Bergloff

2.4. Disagree

2.4.1. That might be OK in some cases, but what isn't is the idea of a common Eurobond. The idea that because Germany can borrow cheaply, that should be extended to France and Italy for them to spend more is obviously very short-termist: the only reason Germany can borrow cheaply is that it hasn't mismanaged public spending in the way these other countries, who are finding borrowing costs go up, have done in the past. Daniel Gros

2.5. Agree

2.5.1. But think of Europe and do it for construction of the European ideal. A common Eurobond needs a common tax base of some form; it also will need a democratic procedure to make allocation decisions. This is the ideal moment and way to build a federalist Europe Dehesa

2.6. Disagree

2.6.1. Even in a federalist system, it is very important that each member runs their budgets responsibly. You can have transfers between federation members, but you shouldn't dilute responsibility except for cases where the spending is clearly on common projects. So it's fine to extend EIB financing on trans-border infrastrutcture. Great. Let's build that supergrid. But the scale of these investments is not of the sort that's being put about by you anti-austerity types. Professor Erik Jones