FinancialGuy Writes!

I know, I know… That is a very loaded headline. Of course, politicians control policy and that policy requires spending decisions. It isn’t possible to separate the two.

But by any reasonable measure, politicians have not proved very adept at balancing a budget. In fact, I would go so far as to say that it is one of the things they are least able to do!

To prove this, The Lisbon Council hosted an event this morning which included the presentation of a report by Prof. Dr. Michael Heise, Chief Economist at Allianz. The report is for something he is calling ‘The Euro Monitor’ and is designed to highlight macroeconomic problems and give warnings as they arise.

All well and good so far.

The trouble is that if you take a look at the report, it becomes quite clear that the eurozone governments – with the main exceptions of Germany and Austria – do not seem to be managing so well. In defence of everyone concerned, the report – which is very interesting – rates the countries on 15 indicators, and no country scores well on all 15. Some do very poorly in some areas and very well in others. C’est la vie.

But there is something that was very noticeable to me, the word surplus is used very rarely. Luxembourg seems to have managed to operate with one, but other than that, the list is short…

I know that the job of a politician is to say yes to lots of people and popular ideas, find a way to pay for it and hope that this turns into votes, but really, why can’t others operate more responsibly?

To quote from the report (page 23), “Put differently: In 2010, none of the EMU countries will attain a balanced budget.”

Therefore, I ask, is it the job of politicians to try and bankrupt their countries? It certainly seems that way.

The implications of these debt levels are wide ranging. Tax rises. Possible structural reforms. Spending cuts. Currency rates. Interest rates. Economic stability. And at the extreme end of the spectrum, possibly the very existence of the euro.

If we think of debt levels on a smaller scale, and instead of Greece needing help, it was a friend or family member. At what point would you have a ‘crisis of confidence’ and decide not to help him or her? At what point does stepping in and helping cease to be a help? How much money would you be willing to ‘lend’ to help this person? At what point do you not believe that the ‘lent’ money will be returned?

At what point does a government (or a population – remember that Greek citizens have rioted at the idea of austerity measures) cease to show enough will to balance a budget, that they should be lent no more?

These are not questions for me to answer, they are for Europe’s political elite. But answer them they must because if this report is to be believed – and I think it is – then the Greek problem will rear it’s ugly head again in time, draped in a different flag.

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