• Which Deficit?

    So, the much-touted and long-awaited government surplus looks unlikely to arrive this year. Is that a surprise? No. Does it matter? Not much.

    The only reason for sparing much time on the failure to eliminate the government deficit is that it relates to a target that the government itself identified as the crucial test of its ability to manage the economy. In doing so, it exploited the confusion in most people’s minds – and that includes the minds of many media commentators – as to what deficit we are really talking about.

    Just a few days ago, in reporting the probability that the government would remain in deficit, Radio NZ news described it as “the country’s deficit” as though the two deficits were the same thing. Sadly, the government deficit, about which so much fuss is made, is only a minor factor in an economy which continues to remain in substantial deficit in its total operations.

    Far from running the economy in a prudent fashion, the government presides over a New Zealand economy that continues to chalk up foreign payments deficits, year after year. We continue, in other words, to go on spending well beyond our means. We fill the gap by selling assets to foreigners and by borrowing at high interest rates to overseas lenders – a classic instance of a rake’s progress that makes a day of reckoning eventually inevitable.

    That foreign payments deficit is about to get a lot worse, as the overvalued dollar (about which so much jingoistic celebration was enjoyed) makes it more and more difficult for us to pay our way. Those cheaper Aussie holidays today are bought at the cost of Kiwi jobs and living standards tomorrow.

    So, let us be clear about the deficit we are talking about – the country’s deficit, the one that matters, the one that is getting worse all the time, or the government’s deficit, that simply defines how much the government takes in tax revenue from the rest of the economy by comparison with how much it spends.

    Is there are any link between the two? Yes – the priority given by the government to its own deficit has almost certainly made the country’s deficit worse. This is because, in a recession, which by definition arises when people (that is, households and corporations) are earning and spending and investing less, the slow-down can only deepen if the other major sector – the government – also cuts its spending.

    Our recession was longer and deeper than it should have been, in other words, because the government gave priority to balancing its own books, and ignored what was happening to the whole economy. An economy that went backwards for several years was even less able than usual to pay its way in the world when the world economy began to improve.

    But surely, many will say, it must be a good thing for the government to tighten its belt when the economy slows down? That would be true if the government were a business, but running an economy is not the same as running a private business. The paradox is that the government’s preoccupation with its own finances has meant a more sluggish economy and reduced tax revenue so that it becomes more and more difficult for the government to balance its books.

    This is the lesson taught by both history and recent experience. It is a lesson that has now been painfully learnt all over again by the world’s central banks, some of which – the European Central Bank, in particular – wasted six or seven year insisting on austerity as the proper response to recession. The people who paid the price for that mistake were Europe’s poor and unemployed; we were saved from worse only because our Australian-owned banks remained relatively stable and because our main export markets in Australia and China remained until recently reasonably buoyant.

    If the government’s finances are only a small part of the picture, why have they attracted so much attention? It is worth noting in passing that, while the Labour government of 1999-2008 recorded a surplus in eight of its nine years, the current government has now chalked up six successive deficits. So why focus on this particular factor?

    The answer is that focusing on the government deficit has been driven by political rather economic considerations. It has served the government very well as the justification for policies that come straight from the neo-liberal handbook. We can be sure that the next round of cuts in the level of public services will be misleadingly explained as “necessary to eliminate the deficit”.

    In the end, in any case, facts cannot be denied. As any accountant will tell you, borrowings and lendings must, as a matter of accounting identities, match each other. Our perennial foreign payments deficit – what we need the rest of the world to lend to us – must be matched by the borrowings our economy makes in total. If the focus is entirely on achieving a government surplus, that makes it inevitable that the private sector (households and corporations) must borrow even more.

    The truth is that, by looking only at the government deficit and ignoring the country’s deficit, we create an unbalanced and broken-backed economy that will survive only as long as overseas peddlers of “hot money” are willing to go on lending to us.

    Bryan Gould

    12 April 2015




  • Ending The Euro Crisis

    The Spanish bailout last week was initially greeted as evidence of the determination to protect the euro and as a step towards much-needed European economic stability. Yet, as subsequent events have quickly shown, what really happened was merely a further staging post in a slow-motion and ultimately inevitable disintegration of the eurozone as we currently know it.

    The first signal that the bailout was not the triumph proclaimed by the Spanish Prime Minister is that the need for it was repeatedly denied, right up till the last minute – and denied largely because it was recognised that it represented a defeat for the policies pursued both by the Spanish government and by the European authorities. The attempt to argue that the bailout vindicated those policies must be regarded as simply putting a brave face on a serious reverse.

    There are, however, much more substantial reasons for reservations about the bailout. Once again, the measures put in place in order to avert disaster have done nothing to recognise, let alone address or remedy, the underlying issues. Those issues, for as long as they remain unresolved, will continue to throw up crises which seem increasingly likely to drive the European economy into recession and the eurozone into a failure that will threaten the whole European project.

    What are those underlying issues? There are probably two that warrant particular attention. The first is what might be described as a fundamental flaw in the initial design of the euro which made it unlikely that it could ever succeed; and the second is the determination to continue with economic policies, particularly in response to the global financial crisis, that have made recovery from that crisis more difficult than it should be.

    As to the first issue, I was not alone in arguing from the outset (as I had argued about the euro’s two predecessors – the European Monetary System and the Exchange Rate Mechanism) that the euro could not possibly work. I argued this because it seemed clear to me that in a hugely diverse European economy, (and that diversity has surely now been demonstrated beyond doubt), it was beyond belief that all parts of that economy could be equally well served by the single monetary policy which a single currency would require.

    In particular, it seemed inevitable that that single monetary policy would be dictated by and would serve the needs of the most powerful parts of the European economy, which inevitably meant Germany. A monetary policy that was congenial to the Germans would almost certainly be less appropriate for weaker parts of the European economy – and today we can see that those weaker parts would necessarily include countries like Greece.

    The Greeks were of course misled into believing that their membership of the eurozone was the entry ticket to the prosperity that the stronger members enjoyed. They were encouraged by the apparent guarantee of support from those stronger members – the sense that “we’re all in this together” – to take advantage of the asset inflation (what can now be seen to have been a “bubble”) created by easy Europe-wide credit, and were allowed not to worry too much about the potentially damaging concentration of productive capacity in Europe’s industrial heartland that a single economy made inevitable.

    It was not just Greece, of course, whose interests were put at risk in this way. Other stronger economies – Spain springs to mind – also suffered in due course from the same combination of apparently risk-free expansion and consumption on the one hand and the weakening of their productive base on the other – both the inevitable consequences of throwing in their lot with much stronger core economies in the wider Europe.

    In due course, even those stronger countries – Germany and its more or less satellite economies – which were the immediate beneficiaries of the single currency and the single monetary policy began to suffer a downside. In the longer term, when the periphery of the wider European economy began to slow down – even to close down – this was inevitably bad news even for the central core, whose markets would be less buoyant and whose obligations to weaker members would be likely to increase.

    It was precisely because the euro would eventually handicap the whole European economy, as well as individual potential members like Britain, that I opposed it so strongly. Sadly, any such stance was dismissed at the time by most commentators as being simply “anti-Europe”.

    The adverse impact of the euro on the European economy began to come to a head, as luck would have it, just as the global financial crisis burst upon us. We need not pause to dissect the global causes of the GFC, other than to observe that they included factors that were already at work in Europe. What has mattered, however, is the response that has been made by the eurozone to the difficulties created by the GFC.

    In line with, and illustrative of, the economic dominance of Germany in the eurozone, the measures adopted to help Europe escape from recession have been largely dictated from Berlin and reflect a particularly German view of what is required. Those measures focused on the suddenly revealed vulnerability of governments in weaker countries to rapidly increasing public sector deficits – deficits made inevitable by the constraints imposed by euro membership and by the impact of the GFC on the relatively loose policies pursued by those countries within the apparent comfort of the eurozone.

    The reduction of those deficits became the main and essentially short-term goal of German policy. The Germans were increasingly nervous that they would be required to finance any rescues that might be needed; and the German government’s own domestic political and ideological preferences (themselves now increasingly challenged within Germany itself) pointed strongly to austerity as the correct response to recession. The consequence has been that the travails of eurozone, and particularly of its weaker members, have been exacerbated by the inevitable consequences of austerity.

    In most circumstances, an economy that discovers that it has become uncompetitive, as evidenced by a trade or public sector deficit, or in the longer term by falling comparative living standards, will respond with a range of measures that will usually include the devaluation of the currency. A devaluation will have the merit of improving competitiveness across the board and doing so in a fair and impartial way, so that everyone bears some share of the short-term burden of the necessary adjustment. It also has the advantage of underpinning and launching an obvious and well-tested strategy for overcoming problems of lack of demand by promoting growth and expansion.

    The devaluation option was not of course open to eurozone members. Without it, they could grow themselves out of recession – which by definition occurs because of a deficiency in demand – only with the aid of a policy framework, in terms of both monetary and fiscal policy, that would encourage greater rather than less economic activity.

    That, however, is precisely what has been denied them by the proponents of austerity. The insistence that Greece and Ireland, Portugal and Spain, and perhaps eventually Italy as well, should cut spending and reduce demand in order to eliminate deficits has ensured that recession becomes persistent and almost impossible to shake off. As the experience of Spain shows most recently, slamming on the brakes means immediately higher unemployment, falling production, a slump in living standards, decimated public services, social unrest and – most significantly for the proponents of austerity – larger, not smaller, public deficits off the back of lower tax revenues. The Spanish bailout is the price being paid by the Spanish people for that mistake.

    Even within in its own terms, the policy is doomed to failure. Austerity is meant to provide an escape route from debt; but it has ensured instead that the bailouts provided to Greece, Spain and others constitute an increased debt burden that they have little hope of repaying while they are going backwards. Little wonder that the money markets immediately saw the Spanish bailout for what it was – a postponement of the inevitable.

    The threat to the future of the eurozone, which may also engulf the global economy, is therefore the outcome of policy mistakes, both in terms of deficiencies in the project itself and in the response to recession. If the measures taken so far have made matters worse, what should now be done to offer better prospects?

    The answer to that question from Europe’s leaders is not encouraging. Because they, and in particular the “troika” of the European Commission, the IMF and the European Central Bank have, through a failure of analysis, ignored the actual causes of the eurozone crisis, they have accordingly continued to press for exactly the wrong remedies. As one eurozone country after another succumbs to the burdens of both euro membership and austerity, the remedies proposed are simply an intensification of both of those burdens.

    It is simply not admitted that the burdens of euro membership have been too much for many members. No attempt has been made to distinguish between those countries that have prospered and those that have not, or to suggest refinements of the rules that might help those that have not. Those that have already demonstrated by falling into economic difficulties that they find membership burdensome, if not impossible, are now being told that if they want help they must accept still tougher rules within a banking union. This would make it even less possible for them to grow and repay debt and would require them of course to concede what remains of their economic sovereignty.

    Even if this proved politically possible (and elections in France and elsewhere seem likely to throw doubt on this), it is hard to see how such a “remedy” would do anything other than bury the root causes of the problems even deeper and make them even more difficult to resolve in the long term. It is the equivalent of plastering over the cracks while the foundations are crumbling. Reality is not averted simply by denying it.

    What is the alternative? The first step must be to recognise the reality that Europe as a whole is handicapped rather than benefited by the current breadth of the eurozone, and that it cannot possibly function well with such diverse membership. There should be a negotiated process for identifying those countries that would benefit from being, or that wished to be, released from the burdens of membership and for helping them to make an orderly withdrawal. Such a process would be complex and difficult, but by no means impossible, and in any case would be less disruptive than a disorderly break-up that otherwise seems inevitable.

    Those countries that chose and were able to remain within the eurozone would no doubt proceed to create what would be in effect a greater German economy. Even so, some of those might well baulk at the prospect of being absorbed into such an entity.

    Countries which chose to leave the eurozone would be able to return to their individual currencies, devalue to the appropriate level, abandon austerity in favour of a strategy for growth, and re-negotiate their obligations with creditors on the basis of a credible prospect of improving tax revenues. No one would pretend that this process is without problems, still less choose to start from here, but other countries, such as Brazil and Argentina, have negotiated similar issues and come out on the other side with improved prospects.

    The numbers of countries choosing to take this option might swell in due course once the practicality and advantages of opting out of the euro became clear. They could then set about, together both with the eurozone and actual and potential European Union members who are not members of the eurozone, the task of building a new kind of European cooperation – what might be described as organic or functional cooperation, in which the process of ever-increasing convergence in the pursuit of common interests did not get too far ahead of the political and economic realities.

    In economic terms, Europe would be much stronger as an entity if the constituent parts were able to apply monetary and exchange rate policies that were more suited to their needs and in particular to their different stages and rates of development. A Europe made up of economies each enjoying optimal macro-economic policy settings, trading with each other on special terms and negotiating trade arrangements with the rest of the world as a single entity, consciously pursuing convergence across the whole field of regulation , co-ordinating and aligning policy development wherever possible, increasingly working together in pan-European deliberative and eventually legislative bodies, would serve Europe’s economic interests much more effectively and do more to promote a genuine sense of European identity than the current abortive attempts to impose from above a European super-state that only a tiny elite has ever wanted.

    To acknowledge that there is not yet a United States of Europe, with a single political identity that makes it possible to accommodate without undue strain a range of divergent economic interests, is not to admit defeat but to recognise the need to build a Europe on the basis of democracy and popular will if the result is to be sustainable. The eurozone crisis may in the end be a blessing in disguise.

    Bryan Gould

    14 June 2012

    This article was published on the NewNations website on 18 June – at http://www.newnations.com/specialreports/theeuro.html

  • Zero Budget, Zero Ambition

    The budget, Bill English tells us, will provide a further step towards a strong long-term economy. That step is certainly needed, since there is precious little evidence of economic strength, long-term or short-term, at present.

    In recent weeks, we have seen unemployment on the rise again, manufacturing output fall back, retail activity stalling, the trade deficit worsening, and GDP figures revised downwards. It is increasingly clear that we have wasted the chance we were offered by buoyant export markets and record commodity prices of pulling ourselves conclusively out of recession. Instead, we have at best bounced along the bottom for nearly four years and, at worst, have left our long-term problems unresolved and getting worse.

    As a result, Kiwis are voting with their feet. Record numbers are responding to unemployment, low wages, reduced public services and poor prospects by crossing the Tasman in search of a better life. Far from closing the gap with Australia, this government has seen us fall further and faster behind.

    Will the budget turn this around? Will the “strong long-term economy” at last materialise? Not if the constant drip-feeding of pre-budget announcements is anything to go by.

    Over recent weeks, prescription charges have been raised, student loan repayments made more onerous, class sizes increased, our diplomatic service decimated, our border security jeopardised, public service broadcasting abandoned, police numbers cut, jobs lost across the public service, help for first-time home buyers slashed, and 0800 numbers substituted for real help with benefits, legal advice, and housing problems.

    It is hard to see how any of this is likely to build a stronger economy, let alone a healthier society. We are told that the cuts – all part of a “zero” budget – are necessary to reduce “the deficit”. But even that limited objective is made more difficult to achieve by constant cutbacks. The reason that “the deficit” is so persistent is that a sluggish economy does not generate the tax revenue that would help to bring it down.

    Dealing with “the deficit” is in any case much more difficult than it should be because the government recklessly gave billions in tax cuts to the wealthy. Having failed to cover the cost of that misplaced generosity through the increase in GST, it must now scrape the bottom of the barrel to find extra funding to pay for the shortfall.

    And that is to say nothing of the fact that constant talk of “the deficit” is misleading in the extreme. The deficit we should be concerned about is not the gap in the government’s finances which – thanks to the prudence of Michael Cullen – are by international standards in reasonably good shape.

    Our real deficit is the amount we continue to borrow as a country from overseas lenders. It is that burden that is actually being made worse by the government’s failure to address our real economic problems and to get the economy moving.

    The Prime Minister has tried to conceal this truth by constantly raising the spectre of the Greek meltdown. If the government does not cut its spending, he says, we could face the same fate as the Greeks. This contention is so ridiculous as to be laughable.

    The Greek problem is the result of a combination of two huge mistakes by Europe’s leaders – mistakes that some of us have warned against for – in my case – many years. The first mistake was to encourage Greece to join a single currency that would impose conditions they simply could not live with.

    By the time that became absolutely apparent it was too late. Confident in the guarantee supposedly provided by membership of the euro, the Greece ran up huge debts which the burdens of euro membership meant they could never hope to repay. There is a dreadful symmetry in the fact that the price for this wilful blindness to economic reality is now being paid, not just by the debtor Greeks, but also by the creditor nations and banks who are equally culpable.

    The second mistake was to insist, as a dwindling band of ideologues continues to do, that the remedy for Greece and the rest of the increasingly recession-ridden euro zone is austerity. We now see (and so does President Obama), not only how hugely damaging this supposed remedy is for the hapless Greeks, but how quickly it is dragging Spain and Ireland, Italy and Portugal, into the same black hole.

    And let there be no doubt. Our own government is making those same mistakes, albeit on a smaller scale. They, too, deny the importance of the exchange rate (as euro membership forced the Greeks to do) in determining the competitiveness needed to improve our economic performance.

    And the emphasis quite unnecessarily placed by the budget on cutbacks is further evidence that, just as in Europe, our government’s watchword is austerity, which may be a sensible way to run a business, but – as all evidence shows –is the wrong response for a country. Like Europe’s leaders, our government stubbornly refuses to learn the lessons of the Great Depression. Can we really be content with an economic outlook about which the best that can be said is that it is “Greek-lite”?

    Bryan Gould

    19 May 2012

    This article was published in the NZ Herald on 23 May.

  • Opening Our Minds

    Over the past four years of recession, we have seen a re-run of the debate that surrounded the Great Depression. In the 1930s, there were those, like Herbert Hoover, who insisted that austerity – by cutting government spending – was the way to beat recession. Others, like John Maynard Keynes, were convinced that the remedy was stimulus and expansion.

    In the event, it was a no-contest – and so it is today. It is now clear that the austerity being inflicted on the benighted Greeks cannot work, but even the other “PIGS” – Portugal, Ireland and Spain – who have done everything required of them by the austerity disciplinarians, have found that they are going backwards, deeper into recession and with a rising ratio of government debt to GDP.

    And while the British may have avoided the problems of euro membership, they chose to impose their own home-grown austerity. The result? They are mired in a recession that threatens to be worse for them than the 1930s.

    In the US, by contrast, President Obama’s stimulus programme – bitterly opposed and relatively timid as it was – is pulling the US economy around. There can now be little doubt that stimulus is the key to beating recession. The time for austerity policies, after all, is when the economy is booming; in a recession, they are the last thing we need.

    As that reality becomes increasingly difficult to deny or ignore, where do we in New Zealand stand? Sadly, we find ourselves with Herbert Hoover, down an ideological cul-de-sac with nowhere to go. The proponents of the current orthodoxy now don’t even bother to defend it; they promise merely a continuation of the long drawn-out stagnation – resorting, like school-kids in the playground, to challenging their critics to offer something better.

    The critics seem increasingly ready to respond to that challenge. A recent example is Bernard Hickey’s interesting suggestion that we should consider “quantitative easing” (or, as it used to be called pejoratively, “printing money”).

    It may not be the first option to come to mind but it is not as way-out as it seems. Many governments (including the current UK and US governments) have “printed money” from time to time – and banks do it all the time, lending money that they do not have, and thereby creating most of the money in our economy out of nothing. If it’s all right for them to make billions from doing so, why shouldn’t governments do it in the public interest, and so get the economy moving?

    There are, of course, many other proposals that offer an alternative to the failed orthodoxy. Here, in 400 words, are a few suggestions, which – if implemented – would go to make up a coherent programme.

    · Put beating unemployment centre stage by investing in much-needed infrastructure projects, so as to raise demand and create new jobs –a virtuous circle which would also help retailing, and private sector investment and productivity.

    · Get the exchange rate down to improve competitiveness so that higher demand is met by New Zealand, and not foreign, industry; do so by ending the use of high interest rates and over-valuation as counter-inflation tools and focusing instead on the real cause of inflation – excessive and irresponsible bank lending for non-productive purposes. As soon as foreign speculators are denied an interest rate premium and an unearned capital gain, the dollar’s value will fall.

    · Remove the balance of trade constraint on expansion by boosting exports through improved competitiveness, so cutting the interest and profits paid to overseas lenders and owners; this will allow us to expand while paying our own way, so reducing the need to borrow overseas or to sell our key assets to foreign owners.

    · Encourage saving and exports rather than consumption and imports by promoting further saving through tax breaks, and – since imports will become comparatively more expensive than domestic production – reduce the incentive to spend on cheap imports at the expense of New Zealand jobs and production

    · Tackle the government’s deficit by collecting a sharply increased tax take as a more buoyant economy generates much greater tax revenue

    · Reduce widening inequality by discouraging excessive salaries, introducing a fair tax system (including a capital gains tax) and stopping the destructive insistence on inflicting the cost of the recession on those least able to bear it – the low-paid, the unemployed, and beneficiaries.

    · Expect improved competitiveness, productivity and profitability in the private sector to stimulate increased investment, especially in skill training, education, and research so as to utilise fully our potential human capital and achieve an economy that reaches its full productive potential.

    · Develop a close understanding of and support for Maori aspirations, given that Maori offer an important potential stimulus to new development and seem to have leaders with a better understanding than pakeha – on issues like asset sales – of what the country needs.

    · Ensure that new investment is encouraged to develop advanced – and particularly environmentally friendly – industries based on green technologies.

    This is all just common sense; none of it is revolutionary. It would rescue us from recession and set us on the right course for the future. It would optimise the market’s strengths and minimise its weaknesses. Don’t let anyone tell you there is no alternative.

    Bryan Gould

    27 February 2012

    This article was published in the NZ Herald on 29 February.

  • Europe’s Disaster

    New Zealand observers of the long drawn-out death throes of the euro-zone might be excused for finding it hard to understand what is going on. They will have lost count of the number of times that Europe’s leaders have proclaimed that they have yet again found a permanent solution to the euro-zone’s ills.

    The difficulty is compounded by the determination of Europe’s leaders – born of either self-delusion or a deliberate intention to deceive – to describe the worsening crisis in deeply misleading terms.

    As Brian Fallow explained in these pages last week, the talk in Berlin and Paris is all about deficits. The crisis is caused, we are told, because euro-zone governments have irresponsibly spent like drunken sailors and have allowed their deficits to spiral out of control. This narrative is of course very congenial to fiscal conservatives.

    The facts, however, tell a quite different story. Virtually all of the euro-zone governments, with the exception of Greece, have maintained a generally prudent stance, either staying in surplus or running deficits well within the 3% limit dictated by the Maastricht Treaty.

    There have been of course occasions when individual governments have, for a short time and for good reason, temporarily run deficits above the 3% limit. And interestingly, these supposed miscreants have included those governments that are now leading the charge to tighten the rules yet further.

    Even the Greek deficit is to be explained in terms that do not correspond with the story told by Merkel and Sarkozy. Greece is as much a victim as a culprit. Greece was never going to live with the monetary regime required by membership of the euro-zone and imposed from Berlin. It was the attempt to do so, without being allowed the usual remedies for lack of competitiveness offered by exchange rate and monetary policy that led directly and predictably to Greece’s current woes.

    What was true of Greece is also true – to varying degrees – of many other euro-zone countries. It is the futility of the attempt to require so many diverse economies, at different stages of development and with such different interests, to subject themselves to a single and largely inappropriate monetary policy, that is the true explanation of the euro-zone’s difficulties. The deficit contagion is the result and not the cause of the crisis.

    Not surprisingly, the mis-diagnosis of the malaise has led to a succession of misplaced remedies and, worse, a failure to grapple with the problem that demands and is susceptible to an immediate solution – the need to ensure that Europe’s banking system does not grind to a halt for lack of liquidity. That failure has placed the global economy in extreme danger of a double-dip recession.

    But it is the longer-term outlook for Europe that is even more depressing. The so-called “solution” agreed in Brussels will simply make matters worse. Far from releasing member countries from an economic straitjacket, Europe’s leaders have decided in their wisdom to give the lock a double turn.

    If the new arrangement holds, which seems doubtful, this would simply condemn Europe to an economic policy that makes it inevitable that half the European economy will, in effect, have to close down. Without access to exchange rate and monetary policies suited to their own circumstances, many euro-zone countries will collapse under the burden of policy dictated from Berlin. And just to make doubly sure, the new arrangement will tighten the rules and impose severe penalties for any breaches.

    Committing Europe’s diverse economies to a one-size-fits-all blueprint would be bad enough. But the dangers are compounded because the blueprint is in fact a recipe for increased austerity across the board, whatever the needs of individual economies. Germany may prosper in conditions decided in Berlin; others will not be so fortunate.

    The remedy for threatened recession is apparently that euro-zone governments must retrench, and achieve a fiscal balance at whatever cost, even if it means running their economies into the ground and thereby making their deficits worse. Such policies applied across Europe will simply drive the European economy into depression.

    Democracy, of course, has played no role in any of this. The people of Europe are required only to bear the burdens of policy failure, not to express an opinion. In implementing the Brussels agreement, no consultation with democratic opinion across Europe is to be countenanced. Elected governments are to be supplanted by a political elite who, pinning their hopes on a political mirage rather than economic reality, are perfectly prepared to defy experience and common sense.

    Does any of this matter to us? A failure of the European banking system, and a renewed financial crisis, would certainly hurt us. Our overseas borrowing, for example, would become much more expensive and difficult – and a prolonged European recession would also depress our major export markets.

    But we should also be aware that the issues being played out in Europe have their echo here, albeit on a much smaller scale. The attempt to outlaw steps that elected governments in future might wish to take, for example, to get people back to work is not limited to Europe. Our own newly elected government has, it seems, signed up in its agreement with Act to do just that.

    Bryan Gould

    11 December 2011

    This article ws published in the NZ Herald on the 13th of December