Austerity-stricken Europe within a slowing global economy

Click here for Mariana Mazuccato’s Bloomberg interview on the trouble with Europe’s austerian turn. And here for an article in Fund Strategy  on the Great Global Slowdown (featuring the Global Minotaur).


  • Mariana Mazuccato, another ClubMed child that wants the party in the South to continue and the North should pay…

    • Actually if you did pay attention to the video, Mazuccato simply said that by stopping the -what you call- party in the South, the north turned its own economy to a funeral.So…may we all rest in peace.

    • This is immature, Mr. Varoufakis. Your “view” that the Germans enjoy letting Greeks suffer is by far more offensive than anything Greek Sheep Lover writes. Freedom of expression should also be a valuable good for you if you like democracy.

    • @A_reader.
      Not at all, Prof. Varoufakis has been far too tolerant of racists and bigots with their comments here. Even the moniker is openly racist, with its implication of Greeks engaging in sex with animals. Absolutely unacceptable for someone like that to be tolerated anywhere on the net, and anyone who cannot see that is an idiot.

  • Mariana Mazuccato starts well and ends bad during her interview. She is right that this should not be about “austerity” but also about proper investments. She is wrong that any country does not let Greece or other countries with problems do those investments. Mario Monti is trying to cut wasteful spending and to use freed ressources for better investments and that’s what every country should do: a combination of austerity where it makes sense and better investments. I’d say Germany does simply not want to pay those investments and demands the countries to pay them themselves since the EZ is not a country and lacks a proper institutional framework which combines control and liability.

    In Ireland, the Troika and the government agreed to use the revenues of privatizations to subsidize jobs for young people. It is up to the Greek government to do the same and convince the Troika to ease austerity and invest more to achieve agreed deficit targets. But to do so, the Greek government must regain credibility and should start sticking to her commitments instead of starting new negotiations every month. For example, the Greek government should finally start privatizing those public companies which make losses anyway to free ressources for better investments. For the troika and creditor nations, it is probably a matter of trust to either provide more money for investments or to demand cuts which have only a short lasting effect. If the EZ was more integrated and had proper options for intervention, it would probably provide ressources for investments less reluctantly.

    Mariana Mazuccato is also right about the role of the German KfW and other institutions for the German economy. But she is wrong that any country doesn’t let Greece use the same system, rather the opposite: More than a year ago, German officials offered Greek officials help to build the same kind of banking network in Greece. The Greeks are said to have refused for whichever reason, probably pride or vested interests. Even the UK wants to copy the KfW-banking system now. The EIB is also a copy of that system by the way, just on a European level. Mariana Mazuccato is also wrong informed about EU funds. Every Greek who reads Greek newspapers knows that the public sector of Greece has badly failed to apply for projects even though EU funds were and are available for them. That is also a national issue, not a Eurpean one even though the bureaucratic procedures are surely a pain in the a** like everything which comes from Bruessels.

  • Professor Mazzucato’s views are entirely correct .One of the very few people talking sense on Europe and Greece. She is right to stress the need for R&D, patient capital and innovation and learning from the institutions and tools available within the German national system of innovation.
    Clearly structural reforms are necessary in a number of economies , however the future for Greece does not entirely depend on the liberalisation of taxis and pharmacies nor on the German plans to convert large areas adjacent to oil and gas deposits ( eg western Thrace , Crete and the Peloponese ) into low wage semi-autonomous special economic zones for German and Turkish investors.
    The Greek people are asked to undergo severe suffering, brain drain , emigration and socio-economic disruption for many years so that they be rewarded with the status of a low wage German and Turkish neo- colonial outpost in control of Greece’s massive mineral wealth and natural gas and oil deposits. This is nauseating and totally unacceptable.
    In my view , the future for Greece is in converging nanosciences and high technology . I have been arguing for this in both Greece and Cyprus for many years . This is not the place for details . The Troika should be seriously questioned publicly as to what the aims are of this obsession with austerity if not accompanied in PARALLEL by the drawing down of all EU available funding for education, training, technology transfer, institution building, banking and investment sources for entrepreneurship in high tech and long term patient capital. This consideration should be trumpeted in all meetings, newspapers, tv and radio. Science, technology , R&D and innovation should be a prerequisite to any discussion or agreements with the Troika.

  • What a comment. Pure and clear racism. No need for more proof that Europe is reliving its “glorious” Thirties. The distance from civilisation to barbarity is a short one.

  • Rubbish ,
    These “Dynamic” investments and people are mostly people you have the ability to recycle declining energy units of account.
    Germany has less coal then it had 5 years ago , 10 years ago…..its solar stuff is a joke and would be a bigger joke if they were in a national economy again

  • I am sorry Yanis but true national currencies again are the only solution now – the market state seems only to have the ability to produce these pretentious city boys and girls.

    Spain & Italy was doing fine ,increasing its domestic productive capacity until the false

    accounting of the Euro market states credit hyperinflation made such investments seem
    not worth it.
    From 1986s Big bang to 2012 damp squib…although it has that planet of the apes quality about it.

  • Gl doing structural reforms and cuts in a world wide , economic recession and see what happens.

    O wait we have Greece and Portugal , Ireland and Spain trying and look where we are now.

    Just fyi Canade and finland ? was the only 2 countries that manage to have cuts and succed ( not the ridicuous kind of like in Greece ) and it was was only when the world economy was in a bubble and that was the reason they succeded.

  • What austerity?

    Austerity is killing Greece. Or so we’re told. The politicians and the press have a clear narrative: to please foreign creditors, the Greek government is cutting spending to such low levels that the provision of basic services is being compromised. The Greek people, who suffer under these cuts, are rebelling. That’s the story that one reads on a daily basis and it sounds good. Too bad it’s not true.

    Yes, Greece is cutting spending. But to call what Greece is doing “austerity” is like saying that going from eating five Big Macs a day to four is “a diet.” Reality is more complicated.

    Look at government finances. Basically revenues fell in 2009 but have since held flat. This is due to three forces. First, revenues that depend on work, income and profits have fallen due to more unemployment, lower wages and lower corporate profits. Second, the government has increased value added taxes on consumption, in part because these are easier to collect than direct taxes (where evasion is high). Third, EU financing for investment has increased, providing additional revenue to the treasury.

    These measures have kept revenues flat but since the economy is contracting, the ratio of revenues to GDP is at a ten-year high of almost 41%. So yes, there is tax evasion and revenues could be higher, but the state is taking in as much money as at any point over the last decade. Meanwhile, the increase in indirect taxes has plunged the economy into a deep recession as people have less disposable income. Deposits have fallen by 35% due to capital flight and dissaving. Wealth is evaporating.

    The reason can be seen on the expenditure side of the equation. From 2008 to 2011, the state cut €13.2 billion (-12.5%) in primary spending (excluding interest). But look closer and the “adjustment” evaporates: less public investment accounts for almost half of that drop, while much of the remainder is explained by less spending on defense, meaning the state is building less infrastructure and buying fewer weapons. Meanwhile, social benefits have risen and spending on wages has declined by merely 7%, largely due to retirements by civil servants rather than any rationalization in public administration.

    But consider something else. In 2011, primary spending was at 43.1% of GDP, down from 48.7% in 2009. Yet spending from 2000 to 2006 averaged 40% of GDP. So even today, the state spends three percentage points more than it did earlier in the decade. In fact, once you strip out capital expenditures (to control for the recent drop in investment), the state is spending 5.3% of GDP more in 2011 than it was in 2000-2006. In 2011 terms, that is a €11.5 billion difference, roughly the amount of money that foreign creditors demand that the state cut over the next few years.

    This breeds three big questions: why does the reduction of infrastructure and defense spending so compromise the provision of public services; why is it so outrageous to shrink the state back to its 2000-2006 levels; and why can the state not provide with 43% of GDP the goods and services it could provide with 40% of GDP?

    These are profound questions that go to the core of what is happening in Greece. Taxes are rising so that the government can buy time to shrink the state back to where it was a decade ago (as a share of the economy). The idea that the state is being starved and therefore cannot provide for its citizens is rubbish. Money is not the issue. The state is alive and well – in fact, it is eating better than it was a decade ago. So much for a diet.

    By Nikos Tsafos:

    • I am afraid that these are not profound questions but, rather, questions based on arithmetical confusion. To deny that real incomes have fallen precipitously in the public service, requires particularly inspired errors of arithmetic – and the comment above is replete with them.

    • I’m afraid that you can’t falsify those facts. And where is this denial, where is the claim that real incomes haven’t fallen? Greece is harassing the private sector and tax increases can hardly be called austerity. At the same time Greece is not doing enough to shrink a public sector which she cannot afford even though many employees in the public sector owe their job to family ties or other dubious connections but not to real demand for their service. In fact, Greek politicians refuse to reduce the size of a public sector which has grown due to clientelism at the expense of the Greek private sector and foreign creditors. It sounds like a bad joke that investments have been cut but unnecessary public sector jobs have been protected and now you and other Greeks demand foreign investments in Greece. Greece should not have reduced public salaries, she should have laid off enough public servants instead and should have let taxes untouched or cut to support private sector growth. Greek politicians are still protecting their clients and you seem to support that since you supported Tsipras and his immature plans to increase the public sector even further.

    • I have no interest in falsifying facts. Just noted that your understanding of the facts leaves much to be desired. E.g. keeping government expenditure constant, as a % of GDP, is utterly consistent with austerity when GDP is falling precipitously.

    • Again, you are twisting words. The claim is not that there hasn’t been austerity but that there havn’t been enough intelligent cuts but rather wrong austerity measures as well as counter-productive tax hikes for the sake of protecting a public sector at the expense of the private one. Keeping useless public sector jobs, cutting investments and rising taxes doesn’t sound very reasonable and there are many useless public sector jobs. The money which is used to pay those people could be used to support job creation in the private sector instead. You shouldn’t complain about austerity, you should complain about the wrong austerity measures. I am not the original author by the way.

    • You obviously believe that, in the midst of a vicious recession-cum-depression, when the private sector is deleveraging massively, the private sector can be helped by injections (in the form of tax cuts or other transfers) paid for by large scale public sector job cuts. Well, I am very much afraid that you are, quite obviously, wrong. Never in humanity’s economic history has something of the sort been achieved (in a recessionary environment). And with good reason. What reason? It is called the fallacy of composition.

    • It is a well-established tradition that idiots who know nothing appeal to “the facts” when making their case — all the time presenting not facts but abject nonsense and propaganda, along with personal opinions that they have somehow concocted.

      You can find some easy-to-read philosophical discussion about this (and other) style of dishonest debating in the famous book “Straight and Crooked Thinking” by Thouless. The inability of even most educated people to conduct rational arguments — some 80 years after the book first appeared — is a testament to the hopeless failure of western education systems.

      It would be laughable if it were not so pitiful.

    • Well, I am very much afraid that this is not a fallacy of composition but you are confusing cause and effect! The tax hikes are one cause for the sharp recession in the private sector and the sharp recession is the major reason why fiscal targets are never met. Demand-based private sector activities create more economic output than unproductive “place holders” in the public sector. It would be the most rational thing to cut jobs in the public sector and use those ressources to stimulate the private sector in order to create more output (growth) with available ressources. This would improve the overall situation, reduce uncertainty, increase the likelihood of meeting agreed fiscal targets, increase the willingness of foreign creditors to continue their support, increase the likelihood that foreign capital returns to Greece if there is less doubt about her Euro membership and so on and so on. It wouldn’t solve everything but it would be a clear improvement. And please, face it: Greece has already been in a recession for three years when her public deficits of 16% became known and before any austerity measures even started. Under such conditions, there is no other way out for Greece than accepting internal devaluation and austerity.

    • Greece had not been in recession for three years when the true size of its budget deficit was revealed in 2009. The recession had barely began. Warning: Commentators in this blog who repeatedly mislead readers with wide off the mark ‘facts’ will be excised without warning.

  • I do not think Yanis has put forward that view.

    And whilst the banned poster, whose very alias if plainly meant to be offensive, is perfectly entitled to freedom of speech there is no need for it to be facilitated here. I think that all sorts of eejits should have freedom of speech, but I am not going to pay for their presses to run.