May 24, 2004

Greek budget mess earns EU rebuke

The BBC is running a story on the Greek buget exceeding the 3% deficit threashold set by the Growth and Stability Pact (better named the Stagnation and Stupidity Pact). Currently haft of the eurozone has broken the treaty, including all of the big economies, Germany, France, and Italy.

Originally forced by Germany (which is also in breach) to stop the smaller countries from running up huge debts based on the strength of the Deutsmark it is now showing what a bad idea the euro was in the first place. The ECB is stubbonly refusing to reduce interest rates enough. This is needed to spur on growth as was done by the Bank of England and US Federal Reserve as soon as the resesion hit in 2001. The goverments of the Euro having no monitary tools to get them growing again have to use either Keynesian (public works to pump money into the system) or Supply Side (tax cuts to give consumers more money to spend) tools instead. Both of these mean that the goverments will run up deficits, which should be then paid off as their economies pick up. to do anythign else would lead to economic decline and them getting voted out in no short order. Therefore they break the pact, therefore they face large fines. Indeed they would probably be having to pay these fines had it not been France that first said that it was going to ignore the pact and try to get it's economy growing again, and this being the EU whatever France says becomes the new rules.


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