" />
Building a world of
resilient communities.

MAIN LIST

 

Without growth, there’s only one ending for Euro debt crisis

Euro blackboard

Will peak oil erase the Euro? Photo: Images_of_Money/Flickr.

European voters are rejecting further fiscal restraint, showing the door to former austerity-imposing politicians in Greece and France. In a similar spirit, European Central Bank President Mario Draghi is now calling for a “growth pact” to replace the “fiscal pact” demanded by Angela Merkel’s government in Germany.

What Europe’s voters and its central bank are coming to recognize is that unremitting fiscal austerity measures are the wrong prescription for what ails the European economy. Instead of curbing budget deficits, they’re actually exacerbating the continent’s economic problems.

Economics textbooks will tell you that hiking taxes and implementing draconian spending cuts will lead to government’s running smaller deficits. But in practice, as we’re seeing across the eurozone right now, those measures can be self-defeating. Rather than helping to wrestle down budget deficits, brutal fiscal austerity measures are actually choking the life out of much of Europe’s economy. Since tax revenues are a function of economic activity, lifeless economies are making it that much harder for countries to stave off recession. In Greece, for instance, the budget deficit isn’t getting any smaller. The only thing austerity measures are shrinking is the country’s GDP.

Europe is mired in a quagmire of financial bailouts, budget deficits and austerity measures, bleak circumstances that have already fostered social upheaval and are now ushering in political change. As I argued in this space last week, sovereign debt defaults won’t be far behind. To avoid this fate, Europe has its hopes pinned on a single magic bullet—growth.

If a strong-enough economic recovery were to take hold, Europe could grow its way out of its huge fiscal deficits and save the monetary union from collapse. That’s a good plan in theory, but the complication facing Europe, and indeed the rest of the world, is that it takes a lot of energy to fuel robust economic growth. What’s more, the most important source of energy for the global economy is oil.

Consider the European economies in the worst shape: Portugal, Italy, Ireland, Greece and Spain. The cumulative national debt of these countries may as well be denominated in barrels of oil instead of euros, because millions of barrels of oil is what will be needed to get those economies growing again. Can those countries afford the cost of economic growth when oil is trading in the triple-digit range?

How much more fiscal punishment can the eurozone endure before countries start throwing in the towel? Without economic growth, there can be only one ending to Europe’s debt crisis. Default. Judging by the newly elected socialist politicians in Greece and France that eventuality is a lot closer than financial markets might think.

Re-posted from Jeff Rubin’s Smaller World.

– Jeff Rubin, Transition Voice

What do you think? Leave a comment below.

Sign up for regular Resilience bulletins direct to your email.

Take action!  

Make connections via our GROUPS page.
Start your own projects. See our RESOURCES page.
Help build resilience. DONATE NOW.

Tags:  

Is This The End Of China’s Coal Boom?

“The End Of China’s Coal Boom,” is a new, must-read …

The Age of Diminishing Returns

A Q&A with Ugo Bardi, author of Extracted: How the Quest for Mineral …

Energy Crunch: The end of business as usual for fossil fuels?

It’s the end of business as usual for fossil fuels. That’s …

Peak oil notes - April 17

A mid-week update. Oil prices in London have risen this week on concerns …

Climate Panel Stunner: Avoiding Climate Catastrophe Is Super Cheap — But Only If We Act Now

The U.N. Intergovernmental Panel on Climate Change (IPCC) has just issued …

Kashagan – Back to the drawing board?

The recent shutdown of Kashagan oil field in Kazakhstan represents one …

King Coal Is Dying a Slow Death in America

In cities choked by pollution and a world coming to grips with the realities …