A few days ago, Jutta Urpilainen stated (in Finnish) that ‘the passionate budget cutters have crawled back in their holes’. She states that it is good that the Finnish government has agreed that ‘adaptive policy’ should be 50% cuts and 50% tax increases. Also she is proud of the Finnish contribution to the Eurocrisis-debate – ‘Finland has been the toughest.’
It is not clear to me if she prefers this 50-50 rule for distressed Eurozone members as well. Finland has been tough with Portugal, Greece and Spain (collateral for support for bailouts). If I have time I will try to find the answers the goverment gave to these questions. But it seems that the answer broadly speaking was ‘Trust us, we know what we are doing and there are no credible alternatives.’
So I don’t know what is the current state of Finnish official thought on the Eurocrisis is – there is curiously little news in the web!
Finance ministers had been seen as likely to give tentative approval for the next tranche on Tuesday though the money is unlikely to be disbursed before December and a deal on debt reduction may require further talks.
Urpilainen repeated that Finland was ready to give Greece more time to reach its financing programme targets but said a restructuring of its debt was out of the question.
Who is she fooling? Who are the Germans, Dutch and Finnish governments fooling, and the ECB?
Yes – Greece should never have been in the eurozone, but neither should probably Italy have been. In the video in this post Yanis Varoufakis explains how Greece cheated itself into the eurozone – by imitating Italy. And seen from the other end, why is the goal for Greece a debt-to-GDP ratio of 120%? Because Italy has been there, and trying to set a stricter standard would cast doubts on Italy as well (and quite possibly, Belgium, although I haven’t seen much news on that country recently).
But why do European finance ministers insist on doubling down on the failed austerity policy? The IMF has by now admitted that the multipliers for the effects of contractionary fiscal policy are far greater than assumed, and there is no way austerity is going to a) reduce the deficit in the short OR long term and b) is no way to restore growth (see e.g. this important post on Spain by Edward Hugh).
So Jutta Urpilainen wants to give Greece more time. Great. What does it matter? Greece will never achieve its goals under current policy. Giving more time is akin to trying yet another round of blood-letting while the patient actually needs nourishing food and medicine. Giving more time to Greece increases the probability that Golden Dawn will grown in all-too-sure elections. With this policy road, Greece is on its way to becoming a failed state. A friend of mine was as a trainee in the Technical University of Athens, and nobody can do any research anymore because there is simply no money for reagents and equipment. How do you expect a country to recover when it is sucked dry?
The main problem lies in the refusal for debt restructuring. Urpilainen and other ‘strict’ masters of European finance still refuse to acknowledge that it is as much the fault of the banks who borrowed money to Greece (and Portugal, Spain) and caused bubbles to inflate, inflation to rise and wages to become uncompetitive relative to Germany. Where is the rule that when investing/borrowing money, you should assess the risk? Where have the German, Dutch and Finnish risk assessors been? The periphery did not suddenly become financially safe because they had the euro or the ECB set the interest rates!
The continuing refusal of debt restructuring will sooner or later spell the end for Greece in the Euro. Either through changes in politics in Greece (Golden Dawn as a major party) or simple economics there will come a sudden and expectedly unexpected default of Greece (ok, Greece has actually already defaulted once).
[UPDATE: see this transcript of the state of the Greek society]
When this moment comes, the question voters should ask their governments is:
Why did goverments cover up the bad risk assessments of banks? Germany borrowing money to Greece to buy German products is akin to a car salesman borrowing you money to buy his shiny car. This is risky and banks should have known better.
Anyway, the Urpilainen Road of Pain (Urpilaisen kipukatu, which is built also by Merkel, Rutte and Draghi) will just lead to more destruction. Greece is already a total wreck – what do you expect to still get out of it?
Oh and by the way – the new Dutch government has been scared the **** out of itself by calculations indicating that its austerity policies will affect the purchasing power of nearly all income groups up to 5 percent per year. Given the export dependency of the Dutch economy and its totally calcified real estate market this is not a good development. Maybe they finally start to understand that austerity is just simply self-defeating?