A daily blog on the thrills, spills, and frequent absurdities of the world's one and only 'non-imperial empire' - as Barroso himself called it - the European Union.




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Wednesday, 7 December 2011

More Debt Does Not Solve Debt Problems

The Sun: go four million miles past it, and you'd come to the end trail of a trillion one-dollar bills that started in your garden.

Let's take a moment to review the principle behind the bailouts: taking a country that cannot afford to pay off its debts, and giving it loans. As every homeowner - and every schoolchild beyond the age of five knows - one thing you do not do when faced with mounting debts is take out more loans to cover it. At best, you're delaying the inevitable collapse: you've just switched one load of unrepayable debts with another. At worst, you've made the situation a whole lot worse. What if the improvements in your financial status you'd banked on to deliver you out of the duldrums refuse to materialise, and you're left with an even bigger pile of debts than you had before? Businesses know this as a well-attested spiral to fiscal doom.

Yet, for some reason, high economics fancies itself immune from the problems that ordinary people encounter when they try to do something patently against fundamental logic, and clings fervently to the belief that debt can be solved with more debt. It is a wild fallacy, and it has already been proven that it doesn't work - they've doubled the ESFS once before, and there have been no fewer than four bailouts, each of which was supposed to stop the crisis in its tracks yet failed utterly to make a blind bit of difference. And where does this money come from? Us, of course - it's from the public funds of member states, which are skimmed off the proceeds of your working week.

That's why we should react with concern when they bandy about any numbers that you instinctively skips over rather than attempt to read. Such as 1,261,066,015,761.89. That is, in US dollars, what they intend to pour into the European Financial Stability Fund. That's double the size of the national economy of the Netherlands, one and a half times that of Australia, and almost equal to that of Spain, and it's about to be sent down the tubes like billions of other euros before it. Oh, and just to add insult to injury - rating agencies have said that they might downgrade the ESFS because the countries that put the money up are themselves at risk of financial trouble as part of the wider eurozone crisis. It just gets better and better, dohn' it?

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