Europe Needs to End Suicide Pact
04/05/2012 11:27 am EST
The suicide of a poverty-stricken Greek retiree has come to symbolize self-defeating austerity, writes MoneyShow.com senior editor Igor Greenwald.
In the central square in front of Greece’s parliament during the morning rush hour yesterday, a distraught 77-year-old retired pharmacist began shouting about not wanting to leave debts to his children. Then he shot himself to death.
The suicide note found on his body said he didn’t want to pick through garbage as a result of austerity imposed by traitors. The site of his death quickly became a makeshift shrine.
The fatal protest mirrored the policy it scorned. Austerity leads governments panicked over debt to commit political and economic suicide via rash cuts.
Evidence is mounting for what should have been expected all along—that deep reductions in government spending and heavy new taxes imposed on struggling, uncompetitive economies would only send them into a tailspin, ultimately costing more in forfeited growth than they aimed to save.
Balanced-budget fans inevitably ask when is the right time for governments to start trying to live within their means. Answer: when the private sector’s not already retrenching, and preferably amid a decent spell of growth. Better still, after a stretch of moderate inflation has made the public debt more manageable.
There’s nothing new about this. The best time to put your house in order is when it’s not burning.
The fire has now spread to Spain, a tinderbox chock-full of unsold homes that’s seeing another spike in interest rates. Spanish banks have borrowed nearly half the money lent out by the European Central Bank to meet their pressing refinancing needs and to buy Spanish government bonds earlier this year.
But that bet isn’t looking so great right now, as the prime minister speaks of “extreme difficulty” and defends harsh austerity as the only alternative to an even more painful bailout. So the banks are dumping the foreclosed properties on their books on buyers enticed with no-money-down 40-year mortgages at rates lower than the government pays.
Yet it’s the government that will almost certainly be asked to bail them out once Spanish housing prices drop much further.
The head of Germany’s Bundesbank, which wrote the austerity playbook, keeps saying things like “consolidation might inspire confidence and actually help the economy grow,” and yet the confidence fairy stubbornly refuses to visit Athens, Madrid, Rome, Lisbon, Dublin, London or Paris.
The governments still being told to swing the axe are starting to waver. Spain’s finance minister has bemoaned a “lose-lose situation,” while an Italian minister has complained that “with austerity, one doesn’t grow.” The conservative likely to lead Greece’s next government said in the wake of the suicide that Greeks need rescuing from ”hopelessness.”
Another bond auction or two as disappointing as Spain’s proved yesterday could turn that country into the next recipient of European bailout funds. Recent history suggests this punishment should be avoided at all costs.