(Or The Blind Leading the Blind - The Sheer Lunacy of Merkel and Sarkozy)
Greece is a failure waiting to happen.
Any idiot can see that.
And NOT because of the Greeks – they are just a typical scapegoat-figure.
But because of the plan.
Why the Greek Bail-Out Will Not Work
(Please note that NOTHING in this section has not been said already.)
Greece has got into debt; they have borrowed too much. This has happened because they had a revenue-expenditure shortfall, which they funded by borrowing.
It is in this light that we need to consider the last ‘rescue package’ offer, which included:
1. austerity measures to redress the revenue-expenditure shortfall
2. ‘writing off’ a huge amount of their debt
3. lending Greece some more (and in our turn borrowing more to do so).
It didn’t work last time, and it won’t work this time:
1. Austerity does not balance the budget. Austerity damages the economy, which throws people out of work, which bankrupts firms, which throws more people out of work, which all reduces the tax-take, which WORSENS the revenue-expenditure shortfall.
2. In the meantime, ‘writing off’ the debt doesn’t work either; it merely transfers the problems from the Greeks to us and our banks.
3. And solving a debt crisis by lending more has to be the silliest solution in the history of humankind.
I am not alone in realising the impossibility of the rescue package.
So why are our political leaders ploughing on with it?
What’s the first rule when you find yourself in a hole?
What needs acknowledging is that cutting the ‘expenditure’ side of things only makes the debt-problem worse.
And if cutting the ‘expenditure’ side of things does not solve the revenue-expenditure shortfall … the only answer surely is to look at the ‘revenue’ side.
We need MORE TAXES.
And this needs the wealthy, who control government, to agree to them.
They need to come to terms with the fact that the ONLY answer is to dig into their own pockets and pay off the debts.
Share the Wealth
Now, when we talk about raising taxes, the rich usually manage to wangle things so that we don’t really tax the rich. The burden tends to fall regressively on the lower rungs of society.
Government needs to realise that taxing the poorer end of society is tantamount to austerity measures.
The thing about the not-so-well-off is that they tend to spend all they get. In terms of demand-led economic stimulus, therefore, taxing the not-so-well-off (e.g. by abolishing the 10p level, or raising VAT) just damages demand, because they have to reduce their spending by the amount of the extra tax they are having to pay.
The ONLY answer to the current deficit/debt crisis is A TAX ON WEALTH – a tax which will make the very rich draw out of their savings and pay off the debt.
And let us start again .. more carefully.
This is true in Greece, and it is true in Britain.
And it is time our political leaders were brave enough to say so.