Anti-austerity bloc brings down Portugal's government

a reply to: ScepticScot

Ah. Handouts.
Well, that works for a while. Then the handor gets tired of it when it seems that the handee just keeps asking for more.

originally posted by: ScepticScot
a reply to: Nyiah

Portugal is limited by being part of the Euro but there is no limited to the money the EU has. Inflation would only be an issue if production didn't rise and I believe there is currently plenty of spare capacity across Europe.

M'kay, but if they have to continue to get EU funds to stay afloat in the future instead of trimming the government fat & fixing some money black holes now, wouldn't that be indicating poor management of said money in the first place? How does shoveling the euros their way stay sustainable if it's not producing anything viable? I'm not finger-waggling here, the US has it's own money issues we NEED to fix even if it results in austerity. Just wondering how anyone expects to stop a gushing waterline break with a sieve?

a reply to: Phage
You will have to explain how economic stimulus programs that create jobs and wealth are "handouts".

a reply to: ScepticScot

Sure, if you explain how expecting the EU to fund it is not a hand out.

On its own fairly little, the EU on the other hand.

As you said, Portugal cannot support the "stimulus". How much should the EU give them to do so? As much as it takes? No matter what?

Sounds very interesting, but my lack of financial knowlegde of jargon needs to know firstly what austerity means.

So it means this from a quick google search.

"difficult economic conditions created by government measures to reduce public expenditure."

So the people have finally pressured the government to increase spending? I don't understand how that all ties in repaying their debts?

Confused as I am can anyone explain in laymans to clear things up, before I cheer on the news.

Don't get me wrong, I'll give anyone a well deserved star for an explanation..

a reply to: Nyiah
The deficit crises was caused predominantly by failure in the private financial sector(all be it assisted by complicit governments) .
Economic problems are not caused by the deficit, the deficit is caused by economic problems. Fix the economy and the deficit will come under control itself.

a reply to: Phage
If spending 100 euros generates a 110 euros back is this a hand out?

a reply to: InnerPeace2012
In very simple terms tax revenue is a function of economic activity. If the economy has spare capacity the spending more to stimulate demand will increase tax take potentially by more than the initial expenditure.
Government spending should be counter cyclical. Spend more in bad times and less in good times. This manages economic cycles.

a reply to: ScepticScot

If spending 100 euros generates a 110 euros back is this a hand out?

If you loan money to someone who can't pay it back, it doesn't matter what the interest rate is. Does it?
Remember what happened in the US, with those junk mortgage loans?

How are things working out in Greece, btw? How'd their "stimulus" work out?

originally posted by: ScepticScot
a reply to: InnerPeace2012

Government spending should be counter cyclical. Spend more in bad times and less in good times. This manages economic cycles.

Ok I'll take that explanation, and that leads to my next question then?

I guess Phage also asked how that helps with the debt crises or rather how does it tie in with repaying the debt?

Thanks, and starred as promoised

a reply to: Phage
There was no stimulus in Greece. Money was given to pay off existing loans. This in no meaningful way promoted economic activity.
You looking at this in accounting terms not economic ones. It is not about loans and interest it is about economic output. The EU benefits by having a healthy Portuguese (or Greek) economy. They could give money to Portugal never to be paid back and still be better off.
Right now the high unemployment in southern europe is a net real economic loss to the EU as a whole. Beggar my neighbour is never a sound economic strategy.

a reply to: InnerPeace2012
Apologies cant link properly as on phone army moment but if you look up Keynesian Multiplier you can get a good understanding of how government spending can kick-start an economy.
Deficit will the come down as greater spending in economy means more tax revenue.
Also worth remembering that it is relative debt to GDP (and cost if that debt) rather than absoulute debt that is important.

a reply to: ScepticScot

The EU benefits by having a healthy Portuguese (or Greek) economy.

Yes.

They could give money to Portugal never to be paid back and still be better off.

Yes. If Portugal could support itself by spending more money.

They could give money to Portugal never to be paid back and still be better off.

I agree. If it were a one time thing. On the other hand, unless fiscal responsibility is demonstrated, what's the point of throwing good money after bad? Deficit spending without the ability to come out of the hole (which you agreed that Portugal has little chance of doing) is not fiscal responsibililty.


Me:

What capacity does the government of Portugal have to dig it's way out of the deeper hole it is digging?

You:

On its own fairly little, the EU on the other hand.

Supporting Portugal for charitable reasons may be one thing. Supporting it for economic reasons is another. But if one is accepting charity, one should not expect to have a blank check.

a reply to: Phage
I am afraid you have misunderstood my comment. Fiscal can (and in my opinion almost certainly would) get the Portugese economy out of its current state. The restriction is on Portugal's agility to spend as part of the EU not on the effectiveness of the spending.
Again stimulus spending is not charity or a hand out but good economic policy.

a reply to: ScepticScot

Do you not think that, if the EU as a whole is to contribute to the recovery of Portugal's economy, there should be some oversight? Or do you think that the EU should write a blank check? "Here's money, do what you wish. Not enough? Here's more."

originally posted by: ScepticScot
a reply to: InnerPeace2012
Apologies cant link properly as on phone army moment but if you look up Keynesian Multiplier you can get a good understanding of how government spending can kick-start an economy.
Deficit will the come down as greater spending in economy means more tax revenue.
Also worth remembering that it is relative debt to GDP (and cost if that debt) rather than absoulute debt that is important.

Just did a search and read through and it seems there is flaw pointed out with Keynesian Multiplier
in this link..www.investopedia.com...

One flaw is ignoring how governments finance spending: taxation or debt issues. Raising taxes takes the same or more out of the economy as saving; raising funds by bonds causes the government to go in debt. The growth of debt becomes a powerful incentive for the government to raise taxes or inflate the currency to pay it off, thus lowering the purchasing power of each dollar that the workers are earning. Perhaps the biggest flaw is ignoring the fact that saving and investing have a multiplier effect at least equal to that of deficit spending, without the debt downside. In the end, it comes down to whether you trust private individuals to spend their own money wisely or whether you think government officials will do a better job.

Read more: What is the Keynesian multiplier? www.investopedia.com...
Follow us: Investopedia on Facebook

So according to that article it all comes down to this, would you agree?

In the end, it comes down to whether you trust private individuals to spend their own money wisely or whether you think government officials will do a better job.

a reply to: Phage
Would be more than happy for the majority of the spending to be done directly by the EU where feasible. I think an EU ran stimulus program across the whole of southern europe is what is required.

a reply to: InnerPeace2012

[qoute]In the end, it comes down to whether you trust private individuals to spend their own money wisely or whether you think government officials will do a better job.[/qoute]

That is quite a conundrum...

a reply to: ScepticScot

Would be more than happy for the majority of the spending to be done directly by the EU where feasible.

I'm not sure what you mean by "where feasible."

I think an EU ran stimulus program across the whole of southern europe is what is required.

A blank check from northern Europe for southern europe. "Here's money. Not enough? Ok, here's more." See, that's sort of what's been going on, except the EU says "Here's money. Use it wisely. And if you don't, there won't be any more." That's what "austerity" means.

a reply to: InnerPeace2012
The problem is when people don't spend their own money due to lack of confidence in the economy, the "paradox of thrift".
What is rational behaviour for an individual, when done en masse can make everyone worse off.
This is why government needs to be the spender of last resort.