The Semi-sovereigns (pt1)

There has recently been a lot of commentary about the fact that one of the foundational studies making the cause for economic austerity, turned out to have 1) coding errors, 2) data omissions, and 3) unjustified data analysis choices. Focusing on these aspects, however important, an essentially misguided front of attack on austerity politics.

The reason for austerity budgets by the governments in southern Europe and Ireland was never the (unjustified) optimistic theoretical belief that austerity was a necessary or sufficient condition for future prosperity. The reason was the very  justified belief that without it, no IMF/EU/ECB loans would be granted and therefore would be no money to pay basic services and salaries. This was, and still is, the dilemma of broke Eurozone governments.

Without a central bank, without the capacity to print currency, these countries lost one of the fundamental tools to handle debt. That, combined with weak productivity and rising labour costs, made the governments of south Europe easy targets for high interest rates on public and private bonds. These are the new Semi-sovereigns: sovereign debt, outsourced sovereign institutions. The UK, Japan, and even the US have comparable (or worse) current and/or future projected debt-to-gdp ratios, but they have sovereign institutions (central banks). This allows them to always have access to printed cash to pay debt, and will never be dependent on loans from the outside to pay basic internal services.

One needs to be clear about this: Countries in the Eurozone, voluntarily abdicated from having these traditionally sovereign institutions. This was a political decision taken by European governments to semi-integrate Europe  Indeed, the Semi-sovereigns seemed fine… Until they needed the fundamental institutions of National financial and economic management.

So the relevant question is not why was austerity implemented by week semi-sovereigns? but rather, why did the strong core demand such level of cuts in return for cash transfers? 

 

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3 thoughts on “The Semi-sovereigns (pt1)

  1. Pingback: The Semi-Sovereigns (pt2) | Social Pulses

  2. Pingback: A modest appeal for total commitment | Social Pulses

  3. Pingback: The Focus of Austerity Protests | Social Pulses

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