Europe is headed to a blood in the streets outcome

By Warren Mosler

My takeaway from two days in DC is that Europe is headed to a blood in the streets outcome.

While ECB funding remains ongoing even as it’s uncertain, in any case, the underlying theme remains austerity. There is no plan B. Just keep raising taxes and cutting spending even as those actions work to cause deficits to go higher rather than lower. So while the solvency and funding issue is likely to be resolved, the relief rally won’t last long as the funding will continue to be conditional to ongoing austerity and negative growth. And the austerity looks likely to not only continue but also to intensify, even as the euro zone has already slipped into recession.

So from what I can see, there’s no chance that the ECB would fund and at the same time mandate the higher deficits needed for a recovery, In which case the only thing that will end the austerity is blood on the streets in sufficient quantity to trigger chaos and a change in governance.

  1. Anonymous says

    I have thought that this would end in riots for many months. I have been more pessimistic than many. Austerity was always the only solution for neoclassical economists. The found one example where it seemed to work, Canada, and seemed to think that would work for every nation with a deficit. Ignoring all the special features that made it work then and are not applicable now is stupid. 

    We need to grow our way out of this crisis. That might be accepted but politicians actually believe in expansionary fiscal contraction, and the confidence fairy. 

    Greeks have already shed blood on the streets, The Irish are angry, as are many in the UK, though many have bought the lie that it was the previous governments fault entirely. As if our former government are also responsible for the problems in Greece, Italy, Spain, Iceland, Hungary, etc. So they have been spinning the blame on to everyone but themselves. The UK economy went into decline as soon as the Coalition started their cuts. The cuts have been targeted at the poor so expect more trouble in the UK. I expect trouble in France and Belgium as the pain hits there, Each nation will react differently.  

  2. Tyler Eepper says

    dont tangle up the “deficit reduction” programmes with the Eurozone crisis.  The German economy was booming until the summer; however the problems in a few periphery eurozone countries ( a tiny % of the eurozone economy ) have been allowed to knock confidence in the economy of the whole continent.

    The uk economy has not be declining; perhaps flat lining.  There have not been any cuts.

    1. Anonymous says

      The problems in Germany are centred around its banks. The small austerity measures in Germany have been minimal. The Eurozone crisis is centred around its banks, and the sovereign nations having to back-stop them. With everyone knowing what a mess the banks are in it becomes apparent the level of support that the nation will need. Don’t forget that Ireland had a surplus before the banking crash and now is in substantial deficit because of its support for banks. With the financial crisis of 2007 causing an increase in deficits since then the problem is how much more debt can they sustain to protect the banks let alone maintain social stability levels of expenditure? That is why the sovereigns became vulnerable as it became clear that the ability to protect the banks was minimal.

      The UK was growing at 2.7% last year this year close to 0.7%. The cuts were slated as starting in April but many changes such as VAT have hit consumer confidence hard. The NHS was not even included in the cuts yet there are already problems in the service because of the new guidance from government. The cuts also imposed wage cuts and pay freezes. That will have immediate impacts even if unemployment does not rise. Also QE has caused a surge in inflation hitting spending power and the Zero interest rate policy has devastated the incomes of savers. 

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