Tuesday, 24 July 2012

09:48 – Spain has as much as said that it will require a full bailout imminently, although as a sop to their pride they’re calling their request a “bridging loan”. A bridge to nowhere. And Germany, Finland, and the Netherlands have as much as said that they’re finished subsidizing Greece. The next couple of months are going to be interesting, in the sense of the old Chinese curse.

What I find amusing is that nearly everyone is missing the point. They blame the so-called “austerity” measures for crushing the economies of the bailed-out countries. In reality, they’re misattributing the symptoms of the underlying disease to side effects of the treatment. The tanking economies of these countries are in the toilet not because of the mild austerity measures being enforced on them, but as a result of a decade or more of irresponsible spending and assuming commitments that were and are impossible to meet.

Austerity measures on the level necessary would in fact solve the problems. They would also reduce Greece, Portugal, Spain, and eventually Italy to the living standards of third-world countries. But that reduction in living standards is inevitable no matter what is or isn’t done. These countries partied on borrowed money for a decade. Now the money has run out, and no one is willing to lend them more. It reminds me of the days shortly after the Cuban revolution, when the USSR was heavily subsidizing Cuba.

Cuba: Send money!
USSR: Tighten belts!
Cuba: Send belts!