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The Forum > Article Comments > European crisis no laughing matter > Comments

European crisis no laughing matter : Comments

By Julie Bishop, published 7/3/2013

At a recent political rally of the German Social Democratic Party, a candidate for Chancellor, Peer Steinbrueck pointed to the political situation in Italy as a challenge for all of Europe.

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Julie Bishop makes one massive mistake early in this article. Italy does not have a sovereign debt as it has no sovereign currency.

Italy has a massive foreign debt (as do Greece, Spain, Portugal etc) denominated in Euros. If it was still on the Lira Italy could do things to bail its economy out of its present predicament (such as devalue or limit imports) that it cannot do while using the Euro.

It it could even default on its foreign debt, a solution which puts the problem back on the countries and banks which foolishly made the loans that form the foreign debt. Those countries and their banks may even have made the loans to avoid their own internal economic problems which is how China has accumulated massive quantities of USA Loan certificates.

Italy is like a "broke" state in Australia or the USA.

Julie (and Julia) needs to read up on Modern Money Theory. The primer with that title by Professor L Randall Wray of the University of Missouri, Kansas City, might be a suitable starting point.

The Kansas City Economics Department, chaired by Dr Stephanie Kelton, presents some excellent blogs at New Economic Perspectives on just such matters, as does Professor Bill Mitchell at billy blogs.

These intellectually competent people forecast that the present European crisis would occur if the Euro was adopted without the essential strong "Federal" European central government which would have meant that individual countries would have had to give up their principal roles and become dependent states.

The most impoverished USA state recovers form the USA government over two dollars for every dollar that state contributes in Federal taxes. The more prosperous US states recover 60 cents per dollar. The impoverished states are usually the ones complining about the size of the USA government.
Posted by Foyle, Thursday, 7 March 2013 10:44:21 AM
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Julie,

John Maynard Keynes made it clear long ago, as has Greece recently, trying to reduce the ratio of debt to GDP by austerity measures doesnít work. Italy is in for the same fate.

Keynes also recognised that the Treaty of Versailles required Germany to accept responsibility for causing the war and under the War Guilt clauses pay heavy reparations. The total cost of these reparations was assessed in 2013 to roughly equivalent to US $442B in todayís dollar terms, a sum Keynes deemed excessive and counterproductive. These Anglo reparation deals lead to fascism, the rise of Hitler and the Nazi party, and was ultimately a major factor leading to World War II.

Europe and the US are faced with the same problems today. Real statistical economic data clearly demonstrate, despite what the mainstream media and politicians are spruiking, that there is no economic recovery. No evidence shows real retail sales, housing starts, consumer confidence, payroll employment, or average weekly earnings indicate economic recovery. Debt deflation is the future for these nations.

Another risk to geopolitical stability is the inability of people like Julie to recognise that austerity like that faced by ordinary people in Germany in the 1920ís and 30ís lead to nationalism, fanaticism and all out conflict.

Europe in particular is facing the same future, politicians in this country, from both sides; do not seem to have any grasp of these broader strategic risks. Not surprising given the calibre of our current crop of politicians
Posted by Geoff of Perth, Thursday, 7 March 2013 1:37:46 PM
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so does this mean the libs are going to cut all that middle classs welfair they loved to dish out under Johnny?
Posted by Kenny, Thursday, 7 March 2013 2:23:22 PM
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Poor Italy, stuck with a governing party riddled with corruption and sleaze + comedians! Hang on a minute! They're not called Labor and Greens are they?
Posted by J Dawson, Thursday, 7 March 2013 2:59:03 PM
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The problem started a long time ago when our politicians got into bed with the bankers.For the USA is was the instigation of the private US Federal Reserve.The US Govt prior 1913 used to create all the new money from nothing to equal increases in population,productivity and inflation.In 1914 they introduced income tax on the people to pay bankers interest on money that was not theirs.The same has happened in this country.

Under the fractional reserve system of banking,banks can have just $10.00 of deposits and create $100.00 worth of loans.This is why banks are the richest institutions on the planet.They own our productivity by virtue of creating from nothing the money to equal it.Thus they also own our Govts.

Our Govts since 1980 have sold off 4 state Govt banks + the Commonwealth.This is the main reason why our taxes have increased.Our Govts now have to borrow from private banks for infrastucture and services.In Western economies this means the harder we work the more debt we incur,hence our economies are in a perpetual state of collapse and revival, with no real productivity being realised.

There is an immediate solution which I will soon post.
Posted by Arjay, Thursday, 7 March 2013 3:43:04 PM
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Ms Bishop suggests that Grillo's party is the largest single party in the Italian Lower House and that means gridlock. As so often with her articles it is only half true. In fact the Democratic Party, with its three allies, constitute 29.54% of the popular vote, making it the largest single group. Berlusconi's People of Freedom Party has eight allies and together they achieved 29.18%. Grillo had no allies and polled 25.55%, making him the third largest group.

Under the peculiarities of the Italian Lower House system, the winning group are given a bonus in seats, so the centre-left group centred on the Democratic Party in fact enjoys a comfortable majority in the Lower House.

The problem arises in the Senate which has a different system of allocating seats. There, the centre-left does not have a majority and will need the votes of Grillo's party to pass legislation. It is a recipe for potential instability, but no more so than in Australia when the government of the day has a majority in the Lower House but not in the Senate.

The truly appalling aspect of the vote was not Grillo, whose party reflected genuine outrage, especially among younger voters, with the status quo, but the fact that a discredited crook like Berlusconi could come within .36% of winning.

The weakest part of Ms Bishop's argument was when she tried to link the economic problems of Europe with the Australian government's economic management. The issues are so widely different that she undermines some serious points with her inability to avoid the temptation to try and score cheap political points. When we know the details of the Coalition's economic policy there can be some serious debate, but I doubt they would really want that.
Posted by James O'Neill, Thursday, 7 March 2013 7:12:11 PM
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