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Home Publications Blogs Beat the Press The Washington Post Can't Get Data on European Debt

The Washington Post Can't Get Data on European Debt

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Friday, 02 December 2011 06:43

That must be the case, since if the Post actually knew the history of European debt it would not begin its lead front page story with a sentence like:

"The head of the European Central Bank signaled Thursday that the institution might be willing to take more-aggressive steps to stem the region’s debt crisis, but only if the 17 nations that share the euro unite behind a plan that could tame years of runaway spending."

Those who have access to data on government debt know that the debt-burdened countries (except Greece) actually had modest budget deficits or even surpluses prior to the collapse of housing bubbles across Europe and in the United States. So there was no pattern of runaway spending that needs to be tamed. There is a severe recession from which Europe needs to recover. If the European Central Bank was more aggressive in promoting growth, with lower interest rates and quantitative easing, it would go far toward addressing the real cause of the deficits in Europe.

Comments (13)Add Comment
Prussian Authoritarianism
written by Steve, December 02, 2011 8:36
It occurred to me that what we are seeing in Europe is classic Prussian authoritarianism, where Germany is trying to impose its world-view on the rest of Europe, and push other nations around.

Rather than kicking the southern nations out of the Euro, they should kick out Germany, so that the rest of Europe can get to the business of dealing with the crisis.
On the other hand...
written by Erik L, December 02, 2011 9:19
...if that spending was enabled only by tax receipts inflated by economic growth caused by easy credit then one might argue that as that credit is withdrawn, those governments would need to lower spending. Or maybe find a way to replace the growth with something else?
The national debt data, including the US
written by AndrewDover, December 02, 2011 10:24
Government debt? Down. Private debt? Up.
written by Anthony, December 02, 2011 10:29
Because this is still such a puzzle to me, I though I would make one last comment on this issue of government surpluses in eurozone countries.

It would surprise me, given the masssive unchecked housing bubbles in Spain and Ireland, if governments proved unable to lower their debt-to-GDP ratios. Any government--even the notoriously corrupt Fianna Fáil in Ireland--can look like a "model of fiscal probity," to use Dean's words, while collecting the proceeds from an ever-expanding asset bubble. Yes, governments weren't being profligate in their spending, but private debt was exploding--especially, of course, in the financial sector.

So while defending these governments--and the ECB--against the charge that they were irresponsible big spenders, we end up missing the larger point: that they were incompetent managers of their own finances, given that they ignored, and in some cases actively encouraged, a massive run-up in private debt. Essentially, they outsourced their spending to the banks, looking in the process like competent, and responsible, EU partners:

Government debt as a proportion of GDP in the eurozone, 1999-2007: a decline from 72% to 67%;

Private debt as a proportion of GDP in the eurozone, 1999-2007: an increase from 52% to 70%.

Again, hardly something to hang your hat on as a defence against the charge of eurozone profligacy.
...
written by joe, December 02, 2011 11:55
Well, the four countries have each averaged deficits of between 2.4% and 4.4% of GDP for the past 11 years. If you rely on the bond market to finance not just the increase in your nominal debt but also the level of your debt relative to GDP for a 10+ year period, then you're no better than the 2007 home buyer who expected his home value to go up forever. If you rely on the kindness of a market, you're taking a risk and looks like the risk came back to bite Europe in the behind. It is only worse when you rely on short-term funding for long-term assets like we're doing. I hope we realize all of this before it's too late - because one the market tells you its too late then you're already dead.
Assuming the Debt of Banks
written by John, December 02, 2011 12:27
The "profligacy" angle becomes even more problematic when you consider how much of the debt of the PIIGS countries is attributable to the support they provided to the banking sector as a result of the 2008-2009 financial crisis. I know Ireland effectively assumed the liabilities of its largest banks, and it was clear at the time that it did so under a great deal of pressure from other countries whose banks would have suffered greatly if the Irish banks defaulted. I am less aware of the details of the support provided by the governments of Spain, Portugal and Italy, but I know it must have been significant. Do you know of any good sources for finding out this information?
...
written by dilbert dogbert, December 02, 2011 12:34
Thanks for your continuing support for my decision a couple of years ago to de-list the WaPoo from my bookmarks. Thanks for reading it so I am not tempted.
Once again, "speculative" borrowing is inherently imprudent
written by Wisdom Seeker, December 02, 2011 12:51
"So there was no pattern of runaway spending that needs to be tamed."

But there was. These governments (and many others) have accumulated a debt burden which is only sustainable if the bond market chooses to sustain it. The bond market has voted otherwise. The governments, rather than being led by their people's votes, are now at the mercy of their financiers.

The pattern of accumulating more debt than you can pay off (without rolling or refinancing) needs to be tamed. Because if a nation can pay off its debt without depending on bankers, it has far more freedom. As it is, we have fallen into debt serfdom.
...
written by liberal, December 02, 2011 2:14
Wisdom Seeker wrote,
Because if a nation can pay off its debt without depending on bankers, it has far more freedom. As it is, we have fallen into debt serfdom.


True, yes, but one relatively easy way to pay off the debt is to inflate. And whether that way is available has nothing to do with fiscal prudence and everything to do with having your own fiat currency.
...
written by Calgacus, December 02, 2011 6:15
Wisdom Seeker:Because if a nation can pay off its debt without depending on bankers, it has far more freedom.

That is what having your own currency means. That is what the Eurozone madly gave up to the ECB, making it effectively the ruler of Europe.

liberal:True, yes, but one relatively easy way to pay off the debt is to inflate.
True, but there is a difference between deficit spending, expansionary policy & inflation. (Unless one uses "inflation" as the Austrians & nobody else does).

Deficit spending is not inflationary until there is full employment. Quantitative easing - exchanging bonds for currency - "paying off debt" that way - is basically never inflationary. The Eurozone is absurdly far from inflation. The ECB backstopping sovereign debt, lowering interest rates could have disinflationary effects. Its behavior is so destructive that people are fleeing the Euro because of real default risks & financial instability. Gilts are more in demand than Bunds.
Post reports the German view
written by Doyle Saylor, December 02, 2011 8:42
I don't see the problem with the Post parroting the German view of austerity for Europe. Face the facts, there is a concerted effort to overcome national sovereignty financial independence. It does no good to say that the ECB could provide debt relief. The ECB agrees with the German political line. They are using austerity or said another way depression economics to restructure the European zone. It's a mistake to see this as a nationalist or German program. The process reflects oligarchic drives on the international level. They, if they want, after they achieve their goals cancel the debts or look somewhat like Keynesian debt relief. In the meantime ECB backstopping sovereign debt to preserve the status quo is a lost cause. One has to globalize the political process not preserve nationalist dreams.

From the U.S. point of view this is Europe breaking it's ties to U.S. hegemony. Hence the U.S. itself must adjust itself to the new reality. That adjustment rather than debt relief is what will matter going forward. Austerity economics is unpopular or undemocratic. Which means restive peoples seeking relief from austerity. Debt relief will not stabilize the current U.S. reality.
The post seems to contradict itself
written by Edward, December 03, 2011 9:11

"Those who have access to data on government debt know that the debt-burdened countries (except Greece) actually had modest budget deficits" vs. "... it would go far toward addressing the real cause of the deficits in Europe." I hope I'm mistaken, but that seeming-contradiction is setting off my BS detector.

The other issue I can't get over is this: If there wasn't a budget deficit of note, then why did the countries in question take out so much national/sovereign debt in the first place? Isn't that precisely the reason for a government to take out debt? (And if not, where did all the money go?)
...
written by liberal, December 04, 2011 1:43
Calgacus wrote,
True, but there is a difference between deficit spending, expansionary policy & inflation.


Good point.

You're right that the government should spend at least enough to get the economy going again, and that that doesn't necessarily entail inflation if we're not at full employment.

Thing is, though, that given the enormous debt overhang in the private sector, there are perhaps really only two ways out: debt forgiveness, and inflation. I.e., much of the debt out there simply isn't serviceable.

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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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