Fiscal Irresponsibility 30, Grexit is another socialist failure

Hey Joe, what's happening? An economy that has been on budget deficit for decades should not aspire to have a fiscal surplus? Always living beyond one's means, never living below one's means? Populist but lousy, Joe.

These are screen shots of Joe Stiglitz's tweets last night. The man is playing populist politics here. Tsipras and the Greek majority have declared loudly and clearly that they won't aspire for fiscal surplus, that endless deficit and borrowings are cool and their entitlement mentality is correct. Simply because they are in the Eurozone, they shd be entitled to e ndless bail outs by other Euro economies. Lousy and opportunist thinking.

I replied to Joe Stiglitz on twitter. I doubt if he will bother to respond, the man's head is full of ego and populism.

This chart is from zero hedge's tweet yesterday. This is one reason why Greek debt mess isn't spreading to other banks. 

Greece debt keeps rising and Joe Stiglitz thinks the debt should continue rising via more EU bailout funds. The creditors are irresponsible and insensitive while the debt addict, the debtor is right and cool? Lousy.

Here is a breakdown  of Greece debt, from CNN Money, February 2015. 

No sympathy for Greece leftism and socialism. EU regional central planning is better for its national central planning. Equally heavily-indebted Cyprus, Ireland and Portugal managed to escape a full blown fiscal crisis because they heeded EU's austerity conditions. Greece did not, and things are worsening, not improving. Chart from Bloomberg. 

Tsipras and the rest of Greek socialists, other international socialists, should be ashamed of this development. News from Business Insider, 'Events are nowspinning out of control' in Greece

July 07, 2015.

Varoufakis resigned in the middle of the night on Sunday, and news broke that Tsipras and Varoufakis' replacement — Euclid Tsakalotos — would head to Brussels for an emergency meeting on Tuesday. When they showed up at the meeting on Tuesday, they didn't have a plan.

A report from Reuters on Tuesday indicated that Greece's banks only have 2 days of cash left. And this after ATM withdrawals have been limited to 60 euros per day for over a week now.

And from Bloomberg,  EU Tells Tsipras the Party’s Over as Euro Exit DoorSwings Open, July 08, 2015.

"In a tense and at times emotional meeting, Tsipras’s European peers told him he’d failed to appreciate the efforts the continent’s voters and taxpayers had made to help the Greek people and blamed him for escalating tensions across the region. Six officials agreed to share their knowledge of the private talks while asking not to be named because of the sensitivity of the historical moment.

“Party time at the expense of others in Greece has come to an end,” Lithuanian President Dalia Grybauskaite said. “Europe and the euro area are surely unprepared to pay for the irresponsible behavior of the new Greek government.”

Hard choice but realistic advice from a friend, a true blue economist, Dr. Butch Arroyo:

"There's a minuscule chance that a deal can be worked out by Sunday, but it's just that-- minuscule. Greece should now declare a general default and wipe out their debts 100%. Nationalize the banks, introduce a new drachma, force conversion of euro deposits into new drachma, get their public finances under control with sensible expenditure cuts and more serious efforts to curb tax evasion-- essentially self-directed austerity. To cushion the economic blow the government should seek aid and investment from expatriate Greeks (privatize those ports and utilities) and try to get direct financial support from potentially sympathetic countries like China, India, the US, the trade surplus countries of the Middle East and Southeast Asia, and maybe even Russia. The EU should in turn own up to their own failings and facilitate this exit by at the very least not taking any punitive measures such as rescinding Greek membership in the European economic community, and by providing humanitarian aid. The monetary union never made sense for Greece, and Greece didn't make sense for the monetary union. But they can and should remain in the EU--just not the eurozone. Preserving their membership in the European common economic area and EU nationality of their citizens will help in the coming adjustment.

It's looking to be a very hard road ahead for the Greeks. But on the upside their young citizens can now hope for growth at the end of the hardship. It has been done before-- Argentina in 2002 and before that Malaysia in 1998 were able to survive being cut off from world capital markets and were able to grow again within four years of their crisis. Much will have to change internally to get there. I only hope for them that the Tsipras government or whatever government comes after can rise to the enormous challenges ahead."

I agree with Butch. The Greeks should end their hypocrisy and opportunism of getting money from the Eurozone countries while ignoring the conditions set by their Euro creditors. Call it a spade. If they must ignore the austerity conditions, they should be consistent and ignore, dump the Euro as well. They will get more respect from other countries if they become more realistic than continuing the hypocrisy.

A good chart from The Telegraph, Europe is blowing itself apart over Greece - and nobody seems able to stop it, July 07, 2015.

The Greek majority should kick out socialist thinking in their minds. Tsipras and Varoufakis are just the embodiment of their socialist aspiration. They can never socialize wealth forever. They can only socialize poverty forever.

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See also: 
Drug Price Control 23: Greece's Pharmacy Nightmares, January 13, 2012 
Weekend Fun 34: Greece to Become a Social Network, May 19, 2012 

Fiscal Irresponsibility 21: Eurozone Debt, GDP and Unemployment, March 06, 2012 
Fiscal Irresponsibility 24: More on the PIIGS and European Debt, May 16, 2012

Fiscal Irresponsibility 28: Greece's Public Debt and Populism, February 09, 2015 

Fiscal Irresponsibility 29, On the so-called DBM "Underspending" in 2014, June 20, 2015

Election 8: Growth, Debt and the 2013 Polls

* This is my article last Saturday in thelobbyist.biz.
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The Senatorial and local elections last Monday, May 13, 2013, was fought by candidates and political parties on various issues and battle grounds, foremost of which was the economy. While the administration trumpeted the fast GDP growth in 2012 and the recent ratings upgrade to investment status by Fitch and then by S&P, the opposition contended that such growth remains elitist and many poor people remain wondering where the growth and the jobs are.

From a cursory review of certain macroeconomic figures taken from The Economist, the following can be summarized:

One, economic growth of the biggest economies in North America and Europe remain non-impressive if not anemic. While the US and Canada are expected to grow 2+ percent this year and the next (1.7 percent in 2013 for Canada), their unemployment rate remains high at more than seven percent as of March 2013.

Two, the Euro area maintains its low growth, even contraction this year for Italy, Greece, Netherlands and Spain. Unemployment rate for Greece and Spain remains very high at 26 to 27 percent, something that is unthinkable for many Asian economies.

Three, Asia will retain their generally bullish outlook to be led by huge population economies China, India, Indonesia, Philippines and Vietnam. Their unemployment rates though are at medium rates of 4 to 9.9 percent. Inflation rates are projected to remain mild at only two to six percent, except in Vietnam and India that are seen to reach up to 10 percent.

Source: The Economist, May 4^th 2013.

An “inclusive growth” that used to be called “broad-based growth”, of more equitable distribution of growth, income and assets, is the main demand coming from more sectors and players in the economy. Which simply means that people want more jobs, good paying jobs and benefits. Then people will be  able to move up the wage levels through time.

These are modest and understandable demand. A rising and growing economy like the Philippines as shown in the above table should be able to generally comply with these modest expectations. Such job creation need not come from big corporations or the government and its many agencies and offices. More importantly, job creation can come from the people themselves through micro- and small entrepreneurship, medium-sized enterprises with backward and forward linkages with the micro and small enterprises.

Local governments that require the preliminary business permits, taxes and fees, to be topped by business permits, taxes and fees by certain national government agencies (BIR, DTI, SSS, SEC, etc.) should become more considerate of such micro and small entrepreneurs.

Most of the campaign promises of the local and national politicians were focused on fighting corruption and having good governance. It seems that only very few of them proposed to reduce the arbitrary power of those in government to grant business permits and licenses.

Promises of more welfare and subsidies, like universal healthcare, universal education from elementary to college levels, universal housing and relocation, were sure attention grabbing for the voters. But such promises are not new, they have been promised by earlier politicians many decades ago. And high expectations often lead to high disappointment.

There are limits to what the government can provide because it is heavily indebted in the first place. A big portion of the total annual budget, about P1 out of P5, goes to interest payment alone. The public debt stock is rising by around P400 billion a year, mostly due to domestic borrowings.

Source: Bureau of Treasury, Department of Finance

The counting of the election result, even if it was automated, remains slow. This does not seem to be consistent with ensuring credible results. Credibility of the result is the most important consideration of an election, more than the victory of the administration or the opposition. Credible elections, credible justice system and enforcement of rules will produce more long-term positive effect for the economy and the people.

Now that the political and electoral battles are over, it is time to go back to plain economics – how to create more jobs, how to expand more goods and services, so that people can stand on their own in uplifting their own lives without depending too much on the politicians and the government.

Things are generally not so good at the global economy. The Eurozone for instance, nine of its 17 member-countries are now in recession; the average unemployment rate in the Eurozone was a high 11.4 percent in 2012, and is projected to rise further to 12.2 percent this year. Greece and Spain are in worse shape with unemployment rate of nearly 27 percent.

Many investors and traders abroad are hoping that the Philippine economy can provide them the proper economic environment to put their money and talent here, both in the short- and long-term. Let us not frustrate them in their basic expectation. The poor here badly need more jobs, better pay, more goods and services produced in our own soil.

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See also:Election Watch 4: Senatoriables on Healthcare, March 08, 2013 
Election Watch 5: Sin Tax Law, Hospital Over-regulation and Senatoriables, May 07, 2013 
Election Watch 6: On Political Dynasty, May 11, 2013 
Election 7: My Candidates for Senators, May 12, 2013

Privatization 10: More on Selling PAGCOR

My article in interaksyon last week, FAT-FREE ECONOMICS: Pagcor privatization and reducing public debt has attracted some reader comments. I reply to them as much as possible, in order to clarify more points that I already made.

Here are the comments and my clarifications.

Roy Roger If the government wants new revenue, it should sell non-performing assets like idle lands first. Revenue earning assets such as pagcor & pnoc-ec should be sold last. Why sell a cash cow all of a sudden?
6 hours ago

Shan Tiodianco How much kickbacks will REcto gets from privatization of pagcor? These senators are very devious getting kickbacks of selling gov. owned companies.
Saturday at 1:52pm

Shan Tiodianco I don't trust sen. recto. why sell PAGCOR? it generates big revenues to our gov.
Saturday at 1:57pm

Paul Eugenio You haven't read the article, do you?

Saturday at 6:53pm

Nonoy Oplas Sen. Recto's goal is to raise more money for DepEd, DSWD, LGUs, the Treasury. I suggested that all privatization proceeds should go to retire some public debt, not to any specific department. Savings from annual interest payment can be used for other socio-econ programs. We just need to reduce that huge public debt stock and avoid future Europe type of econ instability.

Why sell Pagcor, to help reduce the public debt, save huge interest payment yearly. Pagcom as a regulatory body expected to earn more money as more huge casino/gaming companies from abroad are coming in.

Yesterday at 3:39am

Paul Eugenio What's the use of earning P40 B from Pagcor if it just goes to debt service, right?

Sunday at 7:53am

Nonoy Oplas hmmm, some people just want to argue on numbers even if the data are already given to them. 

Sunday at 11:26pm

Nonoy Oplas   Top Commenter · University of the philippines
Yesterday I went to the Senate for the Committee hearing of Pagcor privatization. I briefly argued the above in about a minute, in front of Sen. Koko Pimentel III and Sen. Ralph Recto. Thanks to Red Atienza for the invite.
Friday at 11:50am

Benedict Bernabe · Top Commenter · University of Melbourne
Nonoy, one of the reasons why European economies have huge public debt is because they radically privatised many of the state's income-generating activities in pursuit of the neoliberal model of growth (example, UK under Thatcher and US under Reagan), arguing that a scaled back state will be better for the market, and that the state should not operate those outside its spheres of competence. Yet even the World Bank, the IMF and ADB have repositioned themselves about scaling back the state. The Philippines has a healthy debt to GDP ratio, to the point that the country has become a net IMF creditor. A big majority of our public debt is peso-denominated, which means it's used in making the local economy work. Having lower public debt per se is not a good thing in itself. We need some public debt. For one, it's an investment vehicle for the financial market. What we need is a change in perspective in terms of looking at public debt. The governments obligations are reverse side of the coin of the investments of the market. Lastly, there are no guarantees that we will see the entry of more foreign gambling companies once we privatise gambling. Besides, if foreign gambling companies come in, that means they will take their earnings out of the Philippines. There are many ways to improve PAGCOR operations, including amending the PAGCOR charter. But not outright privatisation. I believe that gambling should remain a state monopoly.
17 hours ago

Nonoy Oplas ·A "healthy debt/GDP ratio" at 40%? And we pay P328 B a year on interest payment alone, it's "healthy? come on. CCT spending of about P25B already caused huge political debate here, and people don't think that paying debtors P300+ B a year is just fine? come on.
14 hours ago

Benedict Bernabe · Let's just say it's "manageable." It's important to know who our debtors are. According to latest estimates, 60% of public debt is owed to the domestic market. Meaning, the government is borrowing from Filipino individuals and corporations. So most of the interest payments go to Filipinos and circulate within the Philippine economy. The government is also progressively paying off foreign debt so that it will constitute a much smaller percentage of the national debt. Debt is important in plugging crucial gaps in public spending. The only sustainable way to reduce debt-to-GDP ratios is to grow the economy organically and raise new taxes. Privatisation creates one-off revenues that looks good on paper for one year but leaves a gaping hole the following year that can only be matched by another big ticket privatisation. At one point, the government will run out of things to privatise. Besides, the only time that privatisation makes sense is if the state enterprise is operating at a loss that it requires a lot of state subsidy. I don't think this is the case with PAGCOR. There are better ways to cut public debt than to sell off the state's monopoly on gambling.
13 hours ago

Benedict Bernabe · Also: "Huge government debt, not private sector and household debt, is the main reason for the on-going economic and financial turmoil in a number of European economies now. Their governments have been over-spending and borrowing irresponsibly over the past years and decades." This is an oversimplification. The increase in sovereign debt of European economies is a result of the fallout from the US subprime crisis, to which many European lenders were exposed, requiring bailout by national governments. Bailout expenses, and stimulus spending, coupled with an unresponsive economy that translated to poor growth, hence poor internal revenue, places European economies in a position that made it harder for them to borrow money to finance spending. "Overspending and borrowing irresponsibly" does not capture the essence of the European sovereign debt crisis. The Philippines is in a stable monetary position because of the lessons learned from the 1997 Asian financial crisis, our markets and banks are well regulated and financial institutions adequately capitalised. This will not put us in any European-like crisis anytime soon. So public debt reduction does not justify PAGCOR privatisation.
13 hours ago

Nonoy Oplas · "reduce debt/GDP ratio... raise taxes" ouch. Perhaps you're working in govt or foreign aid bodies that raising taxes to the public is so easy to advocate.

"increase in sovereign debt of European economies is a result of the fallout from the US subprime crisis." See table 2 above, Greece, Italy, Portugal have debt/GDP ratio of 100%, 105% and 62% respectively, already high figures even before the US financial turmoil in 2008-09.
10 hours ago

Benedict Bernabe · Nonoy, I worked with Standard & Poor's Capital IQ as a researcher on the European market. The US subprime crisis started in 2006. European banks have been exposed to these securities even before 2006, hence the increase in debt to GDP ratio. In 2008-09. This era was marked by heavy stimulus spending, believing that spending will not stimulate economic growth. When that didn't happen, they attempted austerity measures, which are still not working. Now they're bailing out their banks. I work for the United Nations after that, on the development side and have seen that cutting out these revenue-generating entities will deal a serious blow to programs that address social inequality. We need more taxes, especially at the higher-tier income. We probably need to create a 40% income tax bracket, and we now have a political opportunity to do that. Your minimal government agenda works in developed countries but we're not there yet. Scaling back the state at this crucial point in development will only mean losing the gains that we have made so far. The privatisation of PAGCOR will only benefit the large capitalists who have enough capital to benefit from the windfall profits coming from gambling. What we need is legislation that dictates the use of proceeds from PAGCOR, not privatise it. Besides there are existing schemes that allow private sector involvement. Gambling should remain a state monopoly, at least in the next ten years.
9 hours ago

Nonoy Oplas · So you really work for one of those "spend-spend-spend, tax-tax-tax" agencies like governments and the UN, no wonder. Many government bureaucrats and politicians are busy operating casino, black jack, lotto, sweepstakes, cockfighting, etc. They are also busy regulating, taxing and restricting entrepreneurs who only want to put up a food shop, a bake shop, internet shop, barber shop, etc. Government failure in running after killlers, murderers, rapists, land grabbers, kidnappers, carnappers, other criminals is very high.

Why would govt bureaucrats and politicians want to endanger their lives running after armed robbers and murderers, when they can easily make more money operating casino and other gambling facilities.
9 hours ago

Benedict Bernabe · Your first paragraph is argumentum ad hominem and your second paragraph is argumentum ad captandum. Your entire proposition is based on reducing public debt through privatisation of PAGCOR. Why are we discussing crime rates all of a sudden? I believe this proves that the economic basis of this proposition is unsound in the first place, and mostly made up of generalisations. Your hypothesis is PAGCOR privatisation will help reduce public debt. The real question is whether the public will benefit from losing a revenue-generating enterprise and pre-paying its debt rather than paying its debt on original terms and keeping PAGCOR. Our credit ratings and credit outlook prove that we are in a very good position to pay our public debt in the long term. Perhaps it was best if you illustrated how the supposed gains from privatising PAGCOR and pre-paying public debt offsets the actual revenue losses that the government will incur.
8 hours ago

Nonoy Oplas · hmm, not ad hominem. That's how I look and view governments, the UN, other multilaterals WB, IMF, ADB, USAID, etc. Their main advocacies are consistent, government to spend-spend-spend, then tax-tax-tax, as what you precisely argued.

I brought up the issue of criminals and government failure, because ultimately we have to define "what is the raison d etre of government" and I argued that running casinos and operating poker and black jack is not and should never be a govt function.

On illustrating how PAGCOR privatization can lead to more govt resources (not losses), see the paragraph after table 1 above.
2 hours ago
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See also:

Privatization 3: UP, NDCP, other SUCs, March 27, 2010

Privatization 4: Utilizing Proceeds and Revenues, August 06, 2010

Privatization 5: Regulate Exec. Pay or Privatize Govt. Corporations? August 31, 2010 

Privatization 6: Camps Aguinaldo and Crame, January 08, 2011

Privatization 7: Debts -- Cut Borrowings, February 23, 2011

Privatization 8: Government Debts: Military Camps and Spratly Issue, June 20, 2011

Privatization 9: PAGCOR and Casino Operations, May 16, 2012

Fiscal Irresponsibility 25: Spain Panic, More Eurozone Woes

Just a continuing proof that BIG government is wrong, is also the continuing debt and financial turmoil in Europe. Of course, the same heavy debt burden is also experienced in North America, Japan and other developed economies, regardless of their forms of government -- parliamentary, presidential, federal, centralized, unitary, etc.

Here are some news headlines yesterday, June 5, from BBC, CNN, FT, WSJ. They look self-explanatory.

A good chart from The Economist, Crunch Time, May 28th 2012.

...According to The Economist's credit-crunch index, credit is now tighter in the euro area than it was at the height of the financial crisis (see top-left chart). This is having a detrimental effect on the real economy, as demonstrated in the following three charts. When the index was last at a similar level during 2008-09, economic output tanked, unemployment shot up and stockmarkets plummeted. Unless policymakers find a lasting and credible solution soon, it seems likely that the same will happen again.

Another chart below from the same magazine, A rebalancing act, May 22nd 2012.

GREECE is in a bind. Because it is stuck with the euro, it cannot become more competitive by currency depreciation. Instead it must lower its real exchange rate, by cutting prices and wages. This is proving a painful process. One measure of progress, unit labour costs (the average cost of staffing per unit of output), is declining and will continue to do so, according to the OECD’s latest Economic Outlook. Cheaper labour should result in cheaper goods, making Greek exports more attractive to foreign buyers and helping to improve the trade deficit. But with less money in workers’ pockets domestic demand—the sum of consumption, investment and stock-building expenditure—is likely to fall further. The OECD recommends that trade-surplus economies, such as Germany and the Netherlands, push up costs. This would make Greece more competitve, without dragging on Greek workers' incomes.

And one more chart, also from The Economist, The German motor, May 15th 2012.

(Germany's) economy surpassed expectations by managing to grow by 0.5% during the first three months of the year. As a whole, the euro area registered stagnant growth, and without Germany its economy would have declined by 0.2%. Germany accounts for about 28% of euro-area output, yet its contribution to euro-area growth has increased markedly since 2004. It was responsible for 65% of the region's growth in output on average since 2007. Meanwhile the euro zone's peripheral countries—Portugal, Ireland, Italy, Greece and Spain—have seen their contribution decline from a pre-crisis average of 45% to a drag of 10% since 2007.

Look at that, a 0.7 percent GDP growth is already "high" in EU situation these days. The economic contraction, negative change in GDP size, has spilled over beyond the PIIGS, now covering Britain and the Netherlands.

Being an advocate of lean and limited government -- for limited coercion, regulations, restrictions and taxation -- it does not make me happy either to see these figures of bad economic performance by those economies under BIG governments.  But since those governments and the respective political parties and political groups and NGOs that support them, cannot be convinced easily of the mistake of further expanding government size and costly welfarism, we have to allow the natural course of events to teach them, the public, some hard lessons.

Some libertarian anarchist friends would question, "Why have limited coercion, why not zero coercion by abolishing government entirely?" Well, sports and gun clubs, rotary and other civic clubs, village and professional associations, etc. are mini-governments actually. They have their own bureaucracies, their own set of rules and regulations with respective rewards and punishments, collect mandatory annual dues and other fees that appear like taxes. In the event of conflict among their leaders, or an inter-club (say gun club) disputes, there is a need for a bigger force with its own coercive power, to settle disputes with finality. And we are referring to the promulgation of the rule of law, enforcement of contracts, between and among people, private enterprises, various civil society organizations, as the main "raison d etre" of government.

Suffice it to say that somehow we need government, but it should be a lean one focused on implementing very few functions. Big and expansive, highly intrusive government is wrong.

Ok, one last data for now. The world's largest economies in terms of GDP size, in trillion US$ current prices, 2001, 2006 and 2011.

Source: CNN Money

* Trivia: If the basis for G8 membership is being the "world's largest economies", then Russia and Canada should be out of G8 and China and Brazil should be in. One way to correct this is to expand the association to G10 and Russia and Canada can remain. But it's all about politics by the G8 member-governments.
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See also:
Fiscal irresponsibility 17: Cut Spending and Borrowing, September 19, 2011
Fiscal Irresponsibility 18: Greece Bailout, October 29, 2011
Fiscal Irresponsibility 19: Rich Countries' Debts, November 24, 2011
Fiscal Irresponsibility 20: Trade and Budget Balances, January 06, 2012
Fiscal Irresponsibility 21: Eurozone Debt, GDP and Unemployment, March 06, 2012
Fiscal Irresponsibility 22: China Borrows, China Lends. April 16, 2012
Fiscal Irresponsibility 23: High Debt and Unemployment and Parliamentarism Hard Sell, May 02, 2012
Fiscal Irresponsibility 24: More on the PIIGS and European Debt, May 16, 2012

Fiscal Irresponsibility 24: More on the PIIGS and European Debt

Below are some charts that I got from various sources, on some fiscal and economic data of Portugal, Italy, Ireland, Greece, Spain (PIIGS) and the other major EU economies. I will limit commentary to the sub-heading in each chart. These images are mostly self-explanatory anyway.

(1) Declining GDP growth while rising unemployment, PIIGS.

source: NYT,   http://www.nytimes.com/2012/05/16/business/economy/leaving-the-euro-may-be-better-than-the-alternative.html?_r=1&ref=global-home#


(2) Government spending 40 to 60 percent of GDP (They need lots of taxes to finance it; taxes not enough, so they borrowed like crazy).

source: Dr. Ed's Blog,  http://blog.yardeni.com/2012/05/europes-wonderland.html

h/t: Prudent Investor Newsletters,  http://prudentinvestornewsletters.blogspot.com/2012/05/unraveling-of-europes-wonderland.html


(3) Governments of G7 countries notorious for fiscal irresponsibility.

source:  http://www.economist.com/blogs/graphicdetail/2012/05/daily-chart-4


(4) 13 European economies have unemployment rate of 10 percent or higher

source:  http://www.economist.com/blogs/graphicdetail/2012/05/european-economy-guide

Meanwhile, in a facebook discussion, my German friend posted that one has to "question the collective wisdom of markets a bit when you see them panicking on the news about Greece..."

I think those bankers and market traders were just watching how much other EU governments (Germany, France, Belgium, etc.) would use their taxpayers' money to bail out Greek pensioners, welfare dependents and the huge bureaucracy. Meaning if more taxpayers' money from other European countries are expected to flow in, those bankers and stock traders will do their usual stuff. If less taxpayers money from other countries are coming in, they will panick and head for the exit. So its a question of how much moral hazards problem is being contributed by those bail out money from other European taxpayers. The bankers and traders mainly react to those moral hazards problem and do their thing as profit-maximizing or loss-minimizing individuals.

Governments created those huge public debts, they are not personal or private debts. These are accumulation of past over-spending and excesses. So the bankers and market traders are watching how much of those excesses in the past will be reformed and thrown away, or how much will be retained or even expanded, via bail out money from other European (or Chinese) taxpayers. Internal reforms like deregulation, liberalization and privatization of some (or many) government assets, and more personal responsibility in many social sectors, do not seem to be highlighted there.

Fiscal irresponsibility, spending always larger than revenues,  living beyond one's means, heavy welfarism even if revenues are not enough to sustain it, reliance on endless borrowing. These are the marks of statism bordering on near socialism policies.

* See also Fiscal Irresponsibility 23: High Debt and Unemployment and Parliamentarism Hard Sell, May 02, 2012

Fiscal Irresponsibility 21: Eurozone Debt, GDP and Unemployment

Europe and Eurozone's fiscal problems continue to wobble their macro economy as citizens keep paying more taxes and fees while their governments keep piling up more debts to the already high debt stock. Below are screen shots of a CNN feature, "Eurozone Crisis: How the figures stack up",  http://edition.cnn.com/SPECIALS/business/euro-crisis/index.html?hpt=hp_c1

All data accurate as of January 11, 2012.

(1) Debt/GDP ratio

Greece leads the pack in this infamous category. Out of the 17 economies here, 12 have exceeded the Eurozone cap. France and Germany's ratio at 83 percent of GDP.

(2) GDP size, $ billion

The largest economies, Germany and France, naturally are the one which have the biggest capacity to bail out the most troubled member-country of the Eurozone. Germany's GDP size in 2011 was $2.567 trillion.

(3) GDP growth rate, 2011

Last year, Greece and Portugal's economies have contracted, and only five economies were able to grow by 2.9 percent or higher. Heavy debt load will naturally lead to lower economic outlook and low or negative GDP growth.

(4) Bond yield, percent

Greece, Portugal and Ireland have breached the "danger zone" in terms of high interest rates for their new debts. Unless the new debts are able to really improve the overall economic productivity of the people and hence, improve the capacity to pay the old and new loans, new borrowings will only further worsen the problem.

(5) Unemployment rate, percent

More debt, more economic uncertainty, more unemployment. Spain's 21.3 percent joblessness rate is really troublesome.

(6) Youth unemployment

The situation is even worse for youth unemployment, with 11 out of 17 economies have 18.3 percent or worse in youth unemployment rate.

The governments of those heavily indebted countries in Europe and elsewhere like the Philippines, are not exactly "helpless" and "optionless" aside from more borrowings. Those governments have lots of assets, like government-owned or controlled corporations, banks and other financial institutions, lands and national parks, universities and hospitals, to sell and privatize. The governments will not abolish these, they will only be sold these usually monopoly bodies to private enterprises. Such privatization should be accompanied with deregulation so that it will not result in government monopoly to private monopoly.

Selling those assets are a lot more acceptable to the average citizens than more taxation. But I can imagine the opposition to such proposal by the employees and officials of those government-owned and controlled bodies and assets, especially for socialist-inspired or leaning governments.

But there should be a limit and stop to the endless borrowing mentality and policy. Because there is also a limit to the capacity of lenders, be there individuals, private enterprises and banks, or foreign governments. No one would keep lending to someone whose capacity to pay back in the future is next to impossible.
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See also:
Fiscal irresponsibility 11: US debt default talks, July 18, 2011
Fiscal irresponsibility 12: More on US debt default, July 28, 2011
Fiscal irresponsibility 13: Obama on debt limit, 2006, August 02, 2011
Fiscal irresponsibility 14: Debt crisis and government failure, August 08, 2011
Fiscal irresponsibility 15: Philippine government budget 2012, August 08, 2011
Fiscal irresponsibility 16: On government bail outs, September 11, 2011
Fiscal irresponsibility 17: Cut Spending and Borrowing, September 19, 2011
Fiscal Irresponsibility 18: Greece Bailout, October 29, 2011
Fiscal Irresponsibility 19: Rich Countries' Debts, November 24, 2011
Fiscal Irresponsibility 20: Trade and Budget Balances, January 06, 2012