Worldwide Debt Crisis - A Failure of Governments

One failure of democracy is that political parties, particularly left of centre ones, try and gain votes by bribing the electorate with money their country simply does not have, so they borrow it. We see this all over the world, including in Britain, with the legacy of the last Labour government. The starkest examples at the moment are in the Euro-zone where Greece, Spain, Portugal, Ireland, and Italy have all overspent and the chickens are coming home to roost.

The PASOK party of Greece, a socialist party, allowed retirement at 62 and offered people a "free" state holiday to try and obtain more of their votes, presumably successfully as they were the party in power. The only problem was that they didn't have the money to pay for it so they borrowed loans that they can't repay. They are now asking for a 50% write down in the value of those loans or they will default as they can't afford the interest. To the ignorant, borrowing money and not paying it back might seem like a good idea but the country in question finds the interest rate it can borrow at rises very steeply indeed as they are proved untrustworthy. This will cause cuts (austerity measures) which will cause Greece to revert back to the peasant economy it was some 30 years ago, with much suffering to the Greek people.

Spain's economy is heading for the rocks with 24% unemployment, the governing party since 17th April 2004 being the PSOE (the Spanish Socialist Workers Party). This left of centre party has overspent just as the Greek government has done with a bailout and austerity measures on the horizon. Most of Spain, except the tourist bit, is heading back to a peasant economy.

In Portugal, the subject of a recent EU bailout, a left of centre government had ruled since 20th February 2005. When the Portuguese Socialist Party took power, they overspent and drove Portugal towards a default situation requiring rescuing by a Euro-zone bailout a year ago. When they were replaced by the PSD and the Peoples Party, a centre-right coalition, following the recent Portuguese elections on 5th June 2011, there was little jubilation. Although the Socialists were swept from power the Portuguese knew they would have to pay the bill from their five years of overspending and suffer the consequences.

The Irish government, Fianna Fail, overspent massively and had to be bailed out by the EU with £7 billion of our money going into the pot to prop up the Irish economy. Following the election on 25th February 2011 Fianna Fail were swept away into third place with Fine Gail left to form the new government. On 4th November the BBC reported:

"It is the first in a series of capital and public spending cuts, as well as public sector reforms. The four-year tax and cut program is meant to show the markets how Ireland will reduce its deficit. The government needs to find 3.6bn Euros in savings in next year's budget alone. The proportion of that to come from lower spending or higher taxes is expected to be confirmed on Friday."

Public spending excesses by their former government have ensured the Irish people will be a lot poorer from now on.

What can be said of Italy, as reported by Michael San Filippo, "Sometimes it seems that the Italian government strives to reach new levels of dysfunctionality. After all, there have been close to sixty governments since the country formed a democratic republic in 1946 following World War II, and political scandals seem to be the norm rather than the exception." Proportional representation has done that country much harm.

As the BBC reported, "The Italian government's borrowing cost has risen...The yield on Italian 10-year bonds rose from 6.37% to a euro-era high of 6.67%. It is feared that Italy, the euro-zone's third biggest economy, could become the next victim of the debt crisis."

Meanwhile our own overspending government of Blair/Brown did much harm to our economy resulting in public spending cuts and higher taxes. We, and our children, will be paying of the debts from the Blair/Brown legacy for decades. Will people never learn? Spend only what you can afford whilst looking after the most vulnerable in society. It's that simple, but some politicians can never resist bribing the electorate with other people's money and of course borrowing, but bills always have to be paid in the long run.

Comments

johnbaxter
Posts: 1

Worldwide Debt Crisis
Reply #1 on : Fri December 09, 2011, 10:57:36

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I am not an economist but I try to follow and understand what is a very complicated story. Nick Colbert however I fear oversimplifies the situation when he argues that the current financial crisis is mainly caused by lefty governments spending more than they raise in taxes and increasing their borrowings.

Certainly where this has happened as it clearly did in the Brown-Blair years it was extremely damaging and the Conservative and Liberal Democrat Coalition was formed to reduce the deficit and rectify the consequences, a task which is proving much more difficult than at first was thought.

The causes of the mess we are in are not however confined to lefty socialists. If you have the stomach for it go to your iplayer and see Inside Job the award winning documentary by Charles Ferguson on the causes of the current financial crisis. It is mesmerising.

He shows, starting with Iceland, that it is the result of the adoption mainly by right wing conservative (Republican in the US) governments and politicians of the aggressive and irresposible deregulation of banks, building societies and the financial market. This move was backed by bankers and colluding economists and this happened in the UK starting under Thatcher and especially in the US under George W Bush. The result is a catastrophe which is far from over.

Those same leading players however continue to walk away with obscene rewards while the rest of society sinks. Much of this was predicted by Vince Cable the Business Secretary and is readably set out in his book The Storm, the World Economic Crisis and What It Means.

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