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Home Publications Blogs Beat the Press Spain and Ireland had Budget Surpluses

Spain and Ireland had Budget Surpluses

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Thursday, 16 December 2010 05:06

It would have been worth mentioning this fact in a piece that discussed Germany's effort to insist on fiscal responsibility in the euro zone's member states in the context of support for bailouts. Most of the currently troubled countries, with the major exception of Greece, would have met almost any standard of fiscal responsibility prior to the crisis.

The current problems of these countries stem from the collapse of housing bubbles that for some reason the top officials of the European Central Bank either did not see or did not take seriously. It would have been worth pointing out that Germany's fiscal responsibility agenda would not have helped in the current situation. 

Comments (5)Add Comment
...
written by izzatzo, December 16, 2010 6:54
Austerian 12-Step Program for Debt Addiction:

1)Cease 'who-could-have-known' denial and admit the addiction repeatedly in support meetings with other debtors, confirming the debt was always there as a public subsidy for freeloading addicts, not privately incurred debt for the self sufficient.

2) Stop blaming others for the debt. It was your fault and yours alone as an immoral hazard of over extended underpriced consumption of free goods and services.

3) Stop exploiting others to support your addiction and bring down those around you with even more debt and disgrace. Don't pace and fret about the future. Fall on your sword like a patriotic teabagger and take the hit so others can survive.

4) Follow the lead of those who escaped debt addiction, who either ended up as rich or on the streets. Don't stay in the middle and stagnate with more addiction.

5)Enter rehab and take economic lessons on how to tell the difference between debt addiction and aggregate demand addiction, in order to understand how the downfall of Greece, Ireland, Spain, Japan and the USA are identical in cause and effect.

6)Remove all surrounding temptations which may cause a relapse, including the other 6 steps like reduced spending, balanced budgets and tax cut traps.
Of Course European Officials Didn't See The Housing Crisis Coming
written by ComradeAnon, December 16, 2010 8:17
Since it's all due to the CRA!
Kinda implies that Central Banks don't work
written by jwo, December 16, 2010 10:55
The current problems of these countries stem from the collapse of housing bubbles that for some reason the top officials of the European Central Bank either did not see or did not take seriously. It would have been worth pointing out that Germany's fiscal responsibility agenda would not have helped in the current situation.


Kinda implies that Central Banks don't work and that maybe some currency competition might help. Not only did the USA Central Bank make a mistake so did most others. Democrats dream that they will someday just get the right people to do such impossible jobs as central monopoly banker. I am not so sanguine.

I either was currency competition or Dean Baker or Scott Sumner for central banker.
Budget surpluses in Ireland a mirage...
written by Anthony Banks, December 16, 2010 12:18
Dean-

I find puzzling your suggestion that the Irish government is to be commended for running budget surpluses during the pre-crash years. Elsewhere you have written that Ireland, prior to 2008, was a "model of fiscal probity."

Clearly, the budget surpluses were a mirage--based, as they were, on tax revenues from the property bubble which the government itself helped inflate.

Could the government have been unaware that the construction industry was contributing a disproportionate--and worrisome--share of GDP? That migrant labour was moving in by the thousands to support the bubble-driven housing industry? Finally, could the government really have been ignorant of the fact that upwards of 20% of its GDP was attributable to profit repatriation by foreign nationals like Google, Pfizer and Microsoft?

The budget surpluses were not the result of fiscal prudence; rather, they were the warning signs that the Irish economy had become badly distorted by a property bubble and a corporate tax structure, both of which were obviously unsustainable.
can greece not have an overvalued currency?
written by osfp, December 17, 2010 2:35
Greece certainly had many problems--but I'm not sure fiscal irresponsibility was one of them. Considering the size of the current account deficit pre-crisis(double digits as a % of GDP), I would have actually preferred larger government deficits so that the private sector could start to deleverage a bit.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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