h******t
发帖数: 872 | 1 With a much less optimistic forecast for economic growth in northern Europe,
it is not actually feasible to expect the weaker economies to pay off their
debt over any realistic time horizon.
More bouts of austerity simply make the position more difficult.
Europe's leaders need to recognise this and devise a clean-cut solution to
the problem before the markets do it for them.
(CNN) -- If Europe's leaders do not restructure the euro and European debt
within a month, the markets will force it on them.
The highly publicised three-way phone conversation between German Chancellor
Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister
George Papandreou may have calmed the markets but it provides no solution
for Europe's economic and banking woes. If anything, by delaying decisions,
it makes the crisis worse.
As economic forecasters, we have the advantage of being able to use our
models of the European economies to help evaluate the likely outcomes of
different policies.
These models start from the knowledge that growth in the Western economies
is likely to be fairly sluggish at best in the medium term. Against this
background, the only countries that are able to get away with cutting
deficits rapidly through deflationary policies are those with underlying
export strength, like Ireland, or with the ability to devalue their way out
of trouble like the UK.
Countries in the Eurozone can make some limited progress but are held back
by the fact that their monetary policies and their currencies are fixed
externally. This is especially the case for Greece, where exports, at less
than 20% of GDP, are very low as a share for such a small economy. Ireland,
by contrast, with admittedly a slightly smaller GDP, has exports at 90% of
GDP and rising.
Because taxation in all economies is highly geared to growth, when GDP does
badly the loss of tax revenue is huge.
Greek GDP is declining at around 5% per annum currently and this is reducing
tax receipts by close to 10% per annum. This is the gap that has to be made
up by higher tax rates and public spending cuts -- which themselves are
negative for GDP growth -- even before making progress with reducing the
budget deficit, let alone the debt ratio.
There was a hope a few months ago that growth in Germany and other parts of
northern Europe would float the southern European economies off the rocks
and back into a situation where an austerity programme could be managed
without growth going negative. This now looks implausible.
With a much less optimistic forecast for economic growth in northern Europe,
it is not actually feasible to expect the weaker economies to pay off their
debt over any realistic time horizon.
More bouts of austerity simply make the position more difficult.
Europe's leaders need to recognise this and devise a clean-cut solution to
the problem before the markets do it for them.
An orderly solution would mean a restructuring of the euro into a hard and a
soft currency so that southern Europe can become competitive and trade its
way out of austerity. It would also include writing off part of the debts of
at least Greece, Portugal and Italy and probably Spain; a bailout of the
affected European banks especially in France; and the printing of money --
quantitative easing -- to cushion the program of fiscal adjustment.
When the new arrangements give certainty, it is likely that China will be
prepared to invest as it looks to diversify out of its dollar holdings,
though at the price of being declared a market economy for World Trade
Organization (WTO) purposes.
Rhetoric from Europe's leaders that a restructuring of the euro means a
collapse of the EU or even war between the countries as suggested by the
Polish Foreign Minister Radek Sikorski does nothing to help and a lot to
hinder.
European politicians have been in denial about the fact that the euro cannot
work in its present form. If they do not adjust the European project into
line with reality in an orderly manner, the markets will do it for them in a
disorderly manner.
Europe's leaders are already facing severe political and legal problems as a
result of their cack-handed attempt through the European Central Bank to
force trading in euro-based financial services into the Eurozone by denying
(as far as one can see, totally against both European Union and WTO rules)
clearing house facilities to non-euro economies.
I would judge that Europe's leaders have a window of perhaps a month, maybe
less.
Failure to act would mean riots, bank collapses and would set back economies
for a decade or more.
For too long, economically illiterate politicians have tried to deal with
Europe's economic and financial problems by covering them with ever thicker
layers of sticking plaster. The markets will not accept this any longer --
as can be seen by the write down in French bank shares. They need to sort
the problem out now. |
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