Tag Archives: budget cuts

Bill Mitchell on the dishonest ‘analysis’ of the almost-Troika

On his blog. Here, I’d like to share the conclusion (my bold). The whole text is quite dense and in places technical, but worth a read, especially now when in Finland all the major political parties compete over how large budget cuts they intend to make after the elections.

The reason that unemployment rose so sharply in the Euro countries between 2008 and 2014 has nothing much to do so-called trade imbalances or differential ULCs.

Those imbalances (as they call them) and different ULCs are not new. What happened in 2008 was a major aggregate spending collapse which was then reinforced by the imposition of austerity.

If I graphed the change in fiscal position (as measured by the differential austerity imposed) and the change in the unemployment rate I would get a very strong positive relationship (more austerity, higher the rise in unemployment rates) which would have some meaning.

That should be the starting point for the European Council – but then that would require them to ask questions about their patently dysfunctional fiscal rules.


Dijsselbloem believes in the confidence fairy: “If we now are less tough on fiscal consolidation, we will kill the recovery”


In this Dutch interview (excerpt online only)with the Dutch Finance minister it is clear that Dutch and European economic policy is unlikely to change (he is the head of the Eurogroup). He really states what is said in the title. Yep, confidence fairy time again.

He also says:

Het probleem is dat werkloosheid hoog is, dus er gaat veel geld naar uitkeringen. De uitgaven voor de gezondheidszorg blijven stijgen, die voor de ouderenzorg ook. Zolang die structurele trends niet gekeerd zijn, zit er weinig anders op dan blijven besparen.’

Or in English: ‘the problem is that unemployment is high, so a lot of money goes to unemployment benefits. Costs for healthcare and elderly care are also rising. As long as those structural trends are not bent the other way, there is no other solution to cut budgets.’

Cost for healthcare and elderly care may be part structural,  given the retirement of the babyboomers. I don’t know about the healthcare  issue, but this may have a lot to do with how the Dutch system works.

But that Dijsselbloem suggests that Dutch unemployment is structural, is rather strange. Yes, the Netherlands had a housing bubble but it is not only construction workers and real estate brokers that are unemployes. A recent report I saw (by the Dutch statistics bureau I think) made explicit mention of loss of jobs in business services, including IT and consultancy.  This has to do with demand. Not structural issues.

The suggestion that cutting government budgets must help to buck trends is quite something. Probably social benefits might be meant, e.g. cutting unemployment benefits might speed up the transfer of workers to other sectors, if Dijsselbloem really thinks Dutch unemployment is structural.

The Dutch economy is going for a rough ride. Why do Europe’s strong countries have such misguided leader? Oh and he also think Olli Rehn will be lenient when (not if, in my mind) the Dutch government will not meet the budget criteria in time.

With politicians like Dijsselbloem,  Europe is doomed, and European Social Democratic policy as well.

Stupid, stupid, stupid – Dutch edition

In De Volkskrant:

Als de economie niet aantrekt en het geraamde begrotingstekort voor 2014 niet daalt onder de 3 procent, ‘herleeft’ het opgeschorte bezuinigingspakket van ruim 4 miljard euro geheel of gedeeltelijk. PvdA-leider Diederik Samsom zei dat woensdag in het Kamerdebat over het sociaal akkoord.

Het kabinet stelde begin maart een pakket bezuinigingen op dat het begrotingstekort in 2014 weer onder de 3 procent moet brengen. Dat pakket staat als gevolg van afspraken met werkgevers en werknemers voorlopig in de ijskast.


If the economy doesn’t pick up and the estimated budget for 2014 does not fall below 3 percent, the suspended austerity package of more than 4 billion euros is ‘revived’ in whole or in part, Labour leader Diederik Samson said Wednesday in the parliamentary debate on the social agreement.

The government proposed a package of cuts in early March that should reduce the budget deficit below 3 percent in 2014. This package is temporarily in the ‘refrigerator’ due to agreements with employers and employees.

OK – please get someone to deliver some simple macro-economics to these people. I repeat: CUTTING BUDGETS IN A RECESSION IS DOING NOTHING TO REDUCE THE BUDGET DEFICIT – in fact it will make it worse, cause more unemployment etc. See Greece, Spain, Portugal, Ireland etc. Why are these people still talking as if there is something like expansionary austerity??

The Dutch economy looks wobbly

I have written before on the state of the Dutch economy, with its key problems housing market, export/logistics-dependent economy and extremely high private indebtedness. But now a news article, following the so-called Social Agreement that was concluded yesterday, which shows the Dutch economy is wobbly (love that word, only not in the context of economics).

The Dutch government postpones action on cutting the budget deficit to 3% in order to gain the confidence/support of the labour unions and other social partners. I wonder how well that goes down in Germany and Brussels?