Peu importe qui sera au pouvoir, des réformes très douloureuses seront notre pain quotidien dans le future le plus proche. Ceci n’est pas une spéculation, mais une vérité et une réalité amère.
“Shale oil production in the US is still in its early stages, and its full potential remains uncertain, but development is happening at a faster pace than shale gas. Preliminary estimates for 2020 range from 5-15 million barrels per day with a production breakeven price as low as $44-68 per barrel depending upon the fields. By the 2020, the US could emerge as a major energy exporter.” The Global Trends 2030 page 35-36
Je ne suis pas un alarmiste d’habitude, mais les alarmes en Algérie doivent être données.
Selon les perspectives économique de 2012 du FMI, l’Algérie doit avoir le coût du baril de pétrole entre $100 à $120 pour pouvoir équilibrer et balancer les dépenses fiscales et budgétaires–c.a.d: pas de déficit et ni de dette publique. En 2011, l’Algérie a enregistré le 2ème plus gros déficit budgétaire des pays producteurs de pétrole au Moyen-Orient et l’Afrique du Nord avec un déficit égale à 3,6% du PIB–c.a.d: 6.8 milliards de dollars. En 2012, elle a enregistré une dette publique relative au PIB de 8,80%–c.a.d: 16.62 milliards de dollars–avec une croissance économique relativement faible de 2.6%. Il faut noter, au passage, que la croissance économique en Algérie est très largement dépendante des exportations du pétrole et du gaz naturel.
L’Algérie se dirige vers une crise budgétaire d’une magnitude et d’une gravité dont le peuple n’ai jamais vu pareille. Le pétrole, le gaz naturel et les produits pétroliers représentent 97% des exportations de l’Algérie. Les hydrocarbures ont longtemps été l’épine dorsale de l’économie Algérienne, et en 2012, le pétrole et le gaz naturel représentaient environ 60% des recettes budgétaires et 44% du PIB. Si l’Algérie ne diversifierait pas son économie d’une manière très brutale et rapide dans les 10 à 15 prochaines années, le pays se dirigera littéralement vers des troubles sociaux gigantesques et le collapse total du système politique.
C’est très simple: Les USA commencent déjà a diminuer drastiquement leur importations de gaz naturel (les USA seront totalement indépendant en gaz naturel en 2020), et pour ce qui est du pétrole, ils seront indépendant des importations, et même exportateurs entre l’an 2025-30. Quand les USA entreront le marché du gaz naturel comme exportateur en 2020 (et par la suite, le marché du pétrole en 2035), les prix de ces 2 produits vont chuter et d’une manière drastique. Non seulement le plus grand consommateur de pétrole au monde n’est plus un importateur de pétrole et de gaz naturel, mais il les exporte en plus. Cela représentera un choc énorme dans les marchés du gaz naturel et du pétrole. Certains économistes ont estimé un swing de $45 à $55 dans le prix du baril. Ceci veut dire une baisse drastique du PIB Algérien, une croissance économique négative, autrement dit une récession, et une baisse d’environs 40% des recettes budgétaires. C’est une catastrophe pour le pays. L’heure du réveil pour l’Algérie est maintenant parce qu’il ne reste plus beaucoup de temps.
A tout casser, l’Algérie a une fenêtre d’opportunité de 10 à 15 années au plus pour agir durant laquelle il faut mettre en place des réformes sérieuses et radicales du système économique entier, et il faut commencer dès maintenant. Si de sérieuses réformes ne sont pas engagées dans les 10-15 prochaines années, l’avenir, pour l’Algérie, sera d’une laideur absolu.
L’Algérie doit réformer radicalement son système bancaire. Elle doit totalement restructurer son système fiscal (perception de l’impôt, collection d’impôt et sa redistribution). Tous les programmes de prestations sociales doivent être totalement revus (retraire, santé, couverture sociale, prestations familiales, le coût du travail, prestation de chomage, logement social, les prestations de Moudjahideene, de fils de Chouhada, et des veuves de Moudjahideenes etc). Certains de ces programmes de prestations sociales doivent complètement être éliminés, d’autres pourraient être renforcés. Il faut éliminer toutes les subventions dans presque tous les secteurs à l’exception des programmes d’éducation, et de santé des enfants, et certains produits de base. Il faut réduire le budget de la défense, fermer et consolider des bases militaires, réduire l’effectif de l’armée, arrêter complètement tous les nouveaux contrats d’armement. Et surtout, il faut ouvrir le marché Algérien et abandonner la règle des 51% parce que le gouvernement Algérien sera forcé de l’abandonner un jour contre son gré; alors il faut le faire dès maintenant quand le gouvernement et l’État sont encore en contrôle de leurs actions.
Depuis 1962, l’Algérie s’est efforcée sans aucun succès a développer des industries hors-hydrocarbures, et en raison de la réglementation lourde étatique, d’une bureaucratie lourde et archaïque, et en raison de l’accent mis sur la croissance mené par l’État, toutes ces réformes ont échoué. Les efforts du gouvernement ont fait peu pour réduire les taux élevés du chômage chronique des jeunes ou à remédier à la pénurie de logements. Une vague de protestations économiques en Février et Mars 2011 a incité le gouvernement Algérien à offrir plus de 23 milliards de dollars de subventions publiques, des augmentations de salaires rétroactives, et d’autres avantages sociaux. Malgré cela, les mouvements sociaux continuent de peser sur les finances publiques, et sur l’environnement politique qui est devenu explosive ces derniers temps.
Les défis économiques à long terme sont plus qu’essentiels, ils sont obligatoires, et doivent comprendre comme partie intégrale la diversification de l’économie au détriment de sa dépendance aux exportations d’hydrocarbures, le renforcement du secteur privé, l’attraction des investissements étrangers, et la création des emplois adéquats pour les jeunes Algériens. Cette diversification de l’économie ne se fera pas sans les réformes susmentionnées.
Cela va être douloureux; c’est une thérapie de choc; un choc au système économique qui a été moribond depuis plus d’un demi-siècle. Mais hélas ce choc doit être fait et donné autrement la douleur sera insupportable quand l’Algérie n’aura plus aucun contrôle sur ses politiques économiques et sociales, et surtout aucun contrôle sur son destin. Sans cette douleur, qui doit être partagée équitablement par tous les Algériens, le désordre social et l’anarchie seront le pain quotidien du pays. .
Et peu importe qui sera au pouvoir, il n’y aura pas de miracles. Peu importe qui sera au pouvoir, il sera obligé de réformer. Peu importe qui sera au pouvoir, il sera obligé d’infliger de la douleur à une population entière et de faire des choix très impopulaires. Aucun dictateur ne peut engager ces réformes douloureuses sans causer un mécontentement populaire, et même un soulèvement. Les dirigeants actuels du pays, la classe actuelle de nos politiciens, n’ont aucune crédibilité auprès du peuple, et sont profondément doutés et haïs par les Algérien. C’est pour cela que celui qui sera à la tête du pays dans un très proche avenir doit jouir d’un large mandat populaire. Ce futur président ou la majorité parlementaire doit avoir le plein appui, le soutien, et la confiance du peuple Algérien. Aucun dirigeant autoritaire peut avoir cela; aucun dirigeant de l’Algérie d’aujourd’hui, de l’Algérie de Bouteflika et des généreux Toukif et Tartag, n’a ce soutien et cette confiance. Seules de véritables réformes démocratiques, avec des élections propres, ouvertes et transparentes donneraient au pays ce leader et cette classe politique qui mèneront le combat des réformes structurelles et institutionnelles.
D’ailleurs, je conseille vivement à ce prochain président de prononcer ce passage légendaire de Churchill lors de son premier au discours a la nation Britannique–ce passage d’une sérénité grave et sérieuse que Churchill a prononcer devant la Chambre des Communes le 13 mai 1940, juste avant l’invasion Nazie et la grande et héroïque Bataille de l’Angleterre.
“Nous sommes dans la phase préliminaire de l’une des plus grandes batailles de l’histoire….nous devons être préparés.
Je voudrais dire à la Chambre comme j’ai dit à ceux qui ont adhéré à ce gouvernement: je n’ai rien à offrir que du sang, du labeur, des larmes et de la sueur. Nous avons devant nous une épreuve des plus graves et des plus sérieuses. Nous avons devant nous beaucoup, beaucoup, de longs mois de lutte et de souffrance.”
Du sang, du labeur, des larmes, de la sueur, et de la souffrance, c’est exactement ce que le futur président Algérien doit promettre au peuple. Tout autre promesse sera un mensonge.
This is an Op-Ed written by Dr. Amartya Sen for the NYTimes. Dr. Sen is Thomas W. Lamont University Professor, and Professor of Economics and Philosophy, at Harvard University and was until 2004 the Master of Trinity College, Cambridge. He is also Senior Fellow at the Harvard Society of Fellows. Earlier on, he was Professor of Economics at Jadavpur University Calcutta, the Delhi School of Economics, and the London School of Economics, and Drummond Professor of Political Economy at Oxford University. To top this already impressive resume, Dr. Sen Nobel was awarded the 1998 Nobel Prize in economic sciences for his work on welfare economics and social choice theory. Briefly stated, Dr. Sen is an authority in the field.
The Crisis of European Democracy
By AMARTYA SEN
May 22, 2012Cambridge, Mass.
IF proof were needed of the maxim that the road to hell is paved with good intentions, the economic crisis in Europe provides it. The worthy but narrow intentions of the European Union’s policy makers have been inadequate for a sound European economy and have produced instead a world of misery, chaos and confusion.
There are two reasons for this.
First, intentions can be respectable without being clearheaded, and the foundations of the current austerity policy, combined with the rigidities of Europe’s monetary union (in the absence of fiscal union), have hardly been a model of cogency and sagacity. Second, an intention that is fine on its own can conflict with a more urgent priority — in this case, the preservation of a democratic Europe that is concerned about societal well-being. These are values for which Europe has fought, over many decades.
Certainly, some European countries have long needed better economic accountability and more responsible economic management. However, timing is crucial; reform on a well-thought-out timetable must be distinguished from reform done in extreme haste. Greece, for all of its accountability problems, was not in an economic crisis before the global recession in 2008. (In fact, its economy grew by 4.6 percent in 2006 and 3 percent in 2007 before beginning its continuing shrinkage.)
The cause of reform, no matter how urgent, is not well served by the unilateral imposition of sudden and savage cuts in public services. Such indiscriminate cutting slashes demand — a counterproductive strategy, given huge unemployment and idle productive enterprises that have been decimated by the lack of market demand. In Greece, one of the countries left behind by productivity increases elsewhere, economic stimulation through monetary policy (currency devaluation) has been precluded by the existence of the European monetary union, while the fiscal package demanded by the Continent’s leaders is severely anti-growth. Economic output in the euro zone continued to decline in the fourth quarter of last year, and the outlook has been so grim that a recent report finding zero growth in the first quarter of this year was widely greeted as good news.
There is, in fact, plenty of historical evidence that the most effective way to cut deficits is to combine deficit reduction with rapid economic growth, which generates more revenue. The huge deficits after World War II largely disappeared with fast economic growth, and something similar happened during Bill Clinton’s presidency. The much praised reduction of the Swedish budget deficit from 1994 to 1998 occurred alongside fairly rapid growth. In contrast, European countries today are being asked to cut their deficits while remaining trapped in zero or negative economic growth.
There are surely lessons here from John Maynard Keynes, who understood that the state and the market are interdependent. But Keynes had little to say about social justice, including the political commitments with which Europe emerged after World War II. These led to the birth of the modern welfare state and national health services — not to support a market economy but to protect human well-being.
Though these social issues did not engage Keynes deeply, there is an old tradition in economics of combining efficient markets with the provision of public services that the market may not be able to deliver. As Adam Smith (often seen simplistically as the first guru of free-market economics) wrote in “The Wealth of Nations,” there are “two distinct objects” of an economy: “first, to provide a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services.”
Perhaps the most troubling aspect of Europe’s current malaise is the replacement of democratic commitments by financial dictates — from leaders of the European Union and the European Central Bank, and indirectly from credit-rating agencies, whose judgments have been notoriously unsound.
Participatory public discussion — the “government by discussion” expounded by democratic theorists like John Stuart Mill and Walter Bagehot — could have identified appropriate reforms over a reasonable span of time, without threatening the foundations of Europe’s system of social justice. In contrast, drastic cuts in public services with very little general discussion of their necessity, efficacy or balance have been revolting to a large section of the European population and have played into the hands of extremists on both ends of the political spectrum.
Europe cannot revive itself without addressing two areas of political legitimacy. First, Europe cannot hand itself over to the unilateral views — or good intentions — of experts without public reasoning and informed consent of its citizens. Given the transparent disdain for the public, it is no surprise that in election after election the public has shown its dissatisfaction by voting out incumbents.
Second, both democracy and the chance of creating good policy are undermined when ineffective and blatantly unjust policies are dictated by leaders. The obvious failure of the austerity mandates imposed so far has undermined not only public participation — a value in itself — but also the possibility of arriving at a sensible, and sensibly timed, solution.
This is a surely a far cry from the “united democratic Europe” that the pioneers of European unity sought.
No Mr. Wolfgang Schäuble, the euro won’t survive Greece’s exit
The German minister of Finance, Wolfgang Schäuble, stated in an interview with the “Rheinische Post” on 11 May 2012 that Europe has the capacities to cope with a Greek euro area exit. He went on to say that Germany and its partners have learned a lot during the last two years and have put in place several protection mechanisms. Basically, this is a strong signal from one of the highest German officials stating that the euro can survive without Greece. Let me say this upfront: No, the euro—and probably the whole European Union project–cannot survive Greece’s exit from the Eurozone. Schäuble’s statement could have been correct if it was given 2 years ago. But now, his statement is tantamount to a Eurozone suicide. And this is why.
However, before we get to why Greece’s exit from the Eurozone would lead to the total collapse of the euro as a currency and probably to the collapse of the European Union as an ambitious yet salutary political project, we need to briefly remember how we got to this point.
The project of the European Union started or was imagined as a purely political project by its founding fathers. On the ruins of the disastrous and destructive second World War, Robert Shumann, Jean Monet, Alcide De Gasperi, Paul Henri Spaak and Konrad Adenauer (two Frenchmen, an Italian, a Belgium, and a German respectively) began imagining a political project that would knit together the different European countries and make the prospect of another destructive war between European countries an impossible endeavor. Of course, this started with a closer economic cooperation limited to a certain number of goods and services and just between a small numbers of countries, which would later on represent the core countries of the European Union. This limited economic cooperation created a spillover effect, and over time, more goods and services were included and more countries wished to join. Long story short, this economic cooperation spilled over into a political cooperation and led to the necessity of creating a common currency—i.e., the euro.
After the Maastricht Treaty (also know as the Treaty on the European Union) was adopted and ratified by most of the countries, the euro was introduced. It was first introduced to the financial markets as an accounting currency in 1999 (it replaced the old ECU) and then introduced in circulation in 17 of the 27 EU member states replacing their national currencies in 2002. The introduction of the euro caused a certain euphoria in the financial markets. Suddenly, countries that were deemed risky for investment saw a drastic influx of cheap capital—i.e., loans. Basically, cheap money started pouring in southern European countries like Greece, Italy, Spain, and even in Ireland and Austria. Belonging to the Eurozone made these countries safe places, though some of them had deep structural flaws (as we came to discover that later on). This influx of cheap capital financed huge housing boom-like bubbles and increased trade deficits. And then, the 2007-2008 financial crisis hit. It started in the U.S., but soon migrated to the European continent. The influx of cheap money dried up. This caused severe economic slowdowns and downturns in almost all of the Eurozone.
Since the European Union is an unfinished economic integration project topped by an even more unfinished political integration, countries like Greece, Spain, and Italy were literally up the creek without a paddle. The economic crisis of 2008 led to a huge fiscal crisis in these countries since they had no control over their monetary policies, and they were obliged to keep their budgetary spending within the 3% allowed by the EU agreements. However, in a time of severe economic crisis, one needs to engage in fiscal deficit spending in order to get out of the hole. The last thing a country needs is drastic cut in public spending. Why? Because drastic cuts in public spending lowers consumption, which lowers demand, which leads to less investments, which leads to less revenues. And the more austerity measure a given country adopts, the more it reinforces this infernal downward spiral. But what did the EU leaders do? They did exactly what they should not have done.
Germany and France (Sarkozy’s France) forced most of the EU members to engage in drastic public spending cuts hoping that fiscal discipline would calm financial markets and stop speculations. However, these EU leaders misread completely the message that most financial markets have been sending. They were not looking for strict fiscal discipline, though some discipline doesn’t hurt. They were looking for serious economic growth prospects. Since spending cuts depress economic growth (just look at the economic growth in the Eurozone countries in the last 2 years and you notice that cuts caused economic stagnation and recession in France, Spain, the UK, Italy, Greece, and so forth), investors and bond markets lost confidence in the Eurozone, and that led to higher interest rates on short term borrowing. Not only are these countries killing their economic growth with all those drastic cuts, but also they can’t even find cheap capital to fund short-term operations. Consequence: 3 European countries—Greece, Spain, and Italy—are on the verge of total economic collapse and serious political turmoil.
So, what if we let Greece out of the Eurozone like Wolfgang Schäuble wants? What would happen to the rest of the Eurozone?
Let us game this scenario for a second.
As we speak, Greece is under a slow-moving financial blitzkrieg. There is a slow moving bank-run on the Greek banks (or what the bankers call a bank-jog). What does that mean? It means that depositors are pulling out their capital to anticipate a possible Greek default or an exit from the Eurozone. This bank-jog has been going on at a very low rate for the last 2 or 3 months, but it has accelerated since the last legislative elections. However, the ECB is backstopping, or for the lack of a better word, financing this bank-jog through lending to Greek banks the necessary capital. More accurately, the Greek banks are using the emergency liquidity assistance until the EFSF (European Financial Stability Facility) agrees to release its bonds, so they can use them as collateral.
However, when the ECB decides to stop financing Greek banks (and that’s what the German minister of Finance, Wolfgang Schäuble, means), Greece would effectively be forced to leave the Eurozone and abandon the euro as a currency, and revert to issuing again its own national currency, the drachma.
The first fallout of such a move is that financial markets would lose total confidence in every Eurozone countries. Greece leaving the Eurozone means that the euro is reversible, and any country could decide to abandon it. Do you remember that bank-jog we just talked about in the previous paragraph? Well, that bank-job would turn into a bank-run on Spanish, Italian, Irish, and possibly French banks. All investors and all financial markets would pull out all of their money at once. Ladies and gentlemen, no bank in the world and in the history of banking has had enough cash or securities in its vaults to face a cataclysmic event like this one. This means that most banks in Spain and Italy would collapse overnight. A large numbers of banks in France, Germany, Austria, Netherlands, and Belgium would also collapse. This would trigger a worldwide chain reaction and some U.S, Japanese, and Russian banks exposed to Eurozone debts would also be severally affected.
What we would be looking at is a total blow-up of the European Union and a severe global depression.
This is what it means to let Greece leave the Eurozone now. On top of the financial and economic global calamity, we would also have a political one. The rise of extreme right and left political parties in Europe and elsewhere would surely be the most likely political outcome. Mainstream parties would be blamed for the catastrophe and would be completely discredited in the eyes of most voters, which would directly benefit the extreme right and extreme left political leaders.
What to do then to avoid such a calamity? Not only must Greece stay in the Eurozone, but also a more encompassing political economy must be devised. First, the mutualization of the debt must be organized. Second, the ECB must be restructured to issue euro-bonds so member states can directly borrow from the ECB at low rate instead of borrowing from banks. Third, a serious economic growth agenda must be considered so countries like Spain, Italy and others could trigger decent economic growth rates and emerge from the infernal cycle of austerity and depression.
Finally, the ECB must increase the Eurozone inflation rate to at least 4%. Why? In a recession, you expect average wages to adjust to a lower level. As the unemployment rate increases, workers are willing to accept lower wages, and as wages decrease, employers become more willing to hire more workers. If this does not occur, the recessionary cycle deepens and becomes persistent. There are several ways to fix this problem, but let us concentrate on the one most suited for the Eurozone. One of the problems in Spain, Italy, Greece and most of Europe is that their workers have become increasingly uncompetitive over the past decade—higher wages, high unemployment rates, and low investments leading to a highly uncompetitive Eurozone worker. One way to correct this is by devaluing the currency, which would effectively reduce wages in a country compared to the rest of Europe. But this solution is not available to most Eurozone member states because they do not have control over their monetary policies. The Eurozone monetary policy is dictated by the ECB. So how do you reduce wages in those countries when you can’t manipulate your currency? Well keep wages constant, but allow a higher inflation rate. If the ECB allows the inflation rate to run at a 4% level, you effectively get no wage increase, but an effective drop by 4%. This would increase the competitive edge of the European worker.
This is the only way out. But to reach these set of solutions, the ECB and the Germans need to get over their obsession about spending, inflation, price stability, and moral hazard. If Angela Merkel keeps on doing what she has been doing and keeps on bullying the rest of the Eurozone member states into these suicidal austerity programs, she would literally cause the collapse of the European Union. Lastly, the ECB needs to embrace its function as an independent central bank facing drastic economic crisis with a possible political and economic collapse of the whole area. The ECB needs to get over its rigid ideology of price stability and face reality. Otherwise, there will not be an ECB in a couple of years.
If you read some of my previous posts on the economy and the crisis of the eurozone, you would know already my opinion about the stupidity of fiscal austerity during recessionary cycle. Well, i hate to say it, but i have been right all along. This past week, however, more and more European policymakers have been softly whispering another tune and getting themselves ready to leave the sinking austerity policy ship to board the demand-side one. It warms my heart that they have finally seen the light.
Of course, i wasn’t the only person highly critical of fiscal austerity. Paul Krugman, one of the most brilliant economists out there, has been arguing the same point since the beginning of the crisis.
Those of you who do not know Dr. Paul Krugman, well he is Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and winner of the Nobel Prize in Economics (aka Sveriges Riksbank Prize in Economic Sciences) for his work on New Trade Theory and New Economic Geography. Since the beginning of the crisis, Dr. Krugman has been writing a series of articles in the New Times explaining the origin(s) of the crisis and advocating for the soundest way of getting out of it. Needless to say that Dr. Krugman has been right on almost everything he has said.
Here is his latest article that he could’ve titled it, “I told you So!”
Death of a Fairy Tale
By PAUL KRUGMAN
This was the month the confidence fairy died.
For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. According to this doctrine, governments should respond to a severely depressed economy not the way the textbooks say they should — by spending more to offset falling private demand — but with fiscal austerity, slashing spending in an effort to balance their budgets.
Critics warned from the beginning that austerity in the face of depression would only make that depression worse. But the “austerians” insisted that the reverse would happen. Why? Confidence! “Confidence-inspiring policies will foster and not hamper economic recovery,” declared Jean-Claude Trichet, the former president of the European Central Bank — a claim echoed by Republicans in Congress here. Or as I put it way back when, the idea was that the confidence fairy would come in and reward policy makers for their fiscal virtue.
The good news is that many influential people are finally admitting that the confidence fairy was a myth. The bad news is that despite this admission there seems to be little prospect of a near-term course change either in Europe or here in America, where we never fully embraced the doctrine, but have, nonetheless, had de facto austerity in the form of huge spending and employment cuts at the state and local level.
So, about that doctrine: appeals to the wonders of confidence are something Herbert Hoover would have found completely familiar — and faith in the confidence fairy has worked out about as well for modern Europe as it did for Hoover’s America. All around Europe’s periphery, from Spain to Latvia, austerity policies have produced Depression-level slumps and Depression-level unemployment; the confidence fairy is nowhere to be seen, not even in Britain, whose turn to austerity two years ago was greeted with loud hosannas by policy elites on both sides of the Atlantic.
None of this should come as news, since the failure of austerity policies to deliver as promised has long been obvious. Yet European leaders spent years in denial, insisting that their policies would start working any day now, and celebrating supposed triumphs on the flimsiest of evidence. Notably, the long-suffering (literally) Irish have been hailed as a success story not once but twice, in early 2010 and again in the fall of 2011. Each time the supposed success turned out to be a mirage; three years into its austerity program, Ireland has yet to show any sign of real recovery from a slump that has driven the unemployment rate to almost 15 percent.
However, something has changed in the past few weeks. Several events — the collapse of the Dutch government over proposed austerity measures, the strong showing of the vaguely anti-austerity François Hollande in the first round of France’s presidential election, and an economic report showing that Britain is doing worse in the current slump than it did in the 1930s — seem to have finally broken through the wall of denial. Suddenly, everyone is admitting that austerity isn’t working.
The question now is what they’re going to do about it. And the answer, I fear, is: not much.
For one thing, while the austerians seem to have given up on hope, they haven’t given up on fear — that is, on the claim that if we don’t slash spending, even in a depressed economy, we’ll turn into Greece, with sky-high borrowing costs.
Now, claims that only austerity can pacify bond markets have proved every bit as wrong as claims that the confidence fairy will bring prosperity. Almost three years have passed since The Wall Street Journal breathlessly warned that the attack of the bond vigilantes on U.S. debt had begun; not only have borrowing costs remained low, they’ve actually fallen by half. Japan has faced dire warnings about its debt for more than a decade; as of this week, it could borrow long term at an interest rate of less than 1 percent.
And serious analysts now argue that fiscal austerity in a depressed economy is probably self-defeating: by shrinking the economy and hurting long-term revenue, austerity probably makes the debt outlook worse rather than better.
But while the confidence fairy appears to be well and truly buried, deficit scare stories remain popular. Indeed, defenders of British policies dismiss any call for a rethinking of these policies, despite their evident failure to deliver, on the grounds that any relaxation of austerity would cause borrowing costs to soar.
So we’re now living in a world of zombie economic policies — policies that should have been killed by the evidence that all of their premises are wrong, but which keep shambling along nonetheless. And it’s anyone’s guess when this reign of error will end.
Prof. Juan Cole’s (University of Michigan) interview on RT television and his analysis of the current US/European sanctions leveled against Iran’s financial transactions and oil exports.