Cheer up. Things could be worse. We could be living in the Eurozone. Oh wait. Some of us do live there. Wonder how that austerity’s been working out …
For those who have been trying not to pay attention, perhaps a brief summary of the situation is in order:
Unemployment, on last report, rose to a record 11.9 percent for the 17 nation Euro Area, and 10.8 percent for the 27 nation area. In Greece the most recent figure was 27.0 percent, Spain 26.2 percent, and Portugal 17.6 percent. Youth unemployment was 24.2 percent in the 17 nation area and 23.6 percent for the 27 nation area.
Apparently, the contractionary expansionists were slightly off in their estimates of the boom times austerity would deliver on the back of rising confidence and greater certainty.
Those unemployment figures suggest that income growth may not have been quite the mad gallop out of the gates that we had been led to expect. And so it turned out, with GDP declining — rather than booming — in the final quarter of 2012 at the rate of 0.6 percent. Powerhouse Germany, as it happens, performed right on that average.
Now, negative growth can’t have been good for tax revenues, which probably meant that most governments were still in deficit, which suggests public debt must have risen further.
And if public debt rose alongside declining income, public debt as a percentage of GDP must also have increased, which it did, to 90 percent.
This virtuous circle of hardship and despair is encapsulated in a simple diagram that I believe is now taught to children in European primary schools as a kind of Euro pride building exercise.
In high school, I am told, they perform this in assembly as a chant. “Austerity, anyone?” ask the girls. “Yes. please,” shout the boys. And so forth.
Then the school captain jots the following example on a whiteboard up the front of assembly:
“If the budget deficit is 50, income 1000, public debt 800, the expenditure multiplier 1.5, and the marginal propensity to tax 40 percent, will government spending cuts of 50 jeopardize the virtuous circle of hardship and despair?”
“No,” shout the female prefects. “Income will fall by 75, the budget will still be in deficit by 30, and public debt will rise to 830!”
“Is it true?” asks the school captain.
“‘Tis true!” shout the male prefects. “Public debt will rise from 80 percent of GDP to 89.7297 percent, rounded to four decimal places!”
“Hurrah!” shout the student body. “We can live out the virtuous circle of hardship and despair for another period!”