28/7/17: Climbing the Deficit Mountains: Advanced Economies in the Age of Austerity

Just a stat: between 2001-2006 period, cumulative Government deficits across the Advanced Economies rose by SUD 5.135 trillion. Over the subsequent 6 years period (2007-2012) the same deficits clocked up USD 14.299 trillion and over the period 2013-2018 (using IMF forecasts for 2017 and 2018), the cumulated deficits will add up to USD 8.197 trillion. On an average annual basis, deficits across the Advanced Economies run at an annual rate of USD0.86 trillion over 2001-2006, USD 2.375 trillion over 2007-2012 and USD 1.385 trillion over 2013-2017 (excluding forecast year of 2018).

As a percentage of GDP, 2001-2006 saw Government deficits for the Advanced economies averaging 2.68% of GDP annually in pre-crisis era, rising to 5.42% of GDP in peak crisis years of 2007-2012, and running at 2.98% of GDP in 2013-2017 period. Looking at the post-crisis period, return to pre-crisis levels of Government spending would require

In simple terms, there is a mountain of deficits out there that has been sustained by cheap - Central Banks’ subsidised - funding, the cost of which is starting to go North. The cost of debt financing is a material risk consideration.

16/2/15: Euro v 'Sustainable Growth': Mythology of Brussels Economics

Euro existence has been invariably linked to the promise of a 'sustainable' prosperity. From days when it was just a dream of a handful of European integrationists through today.  Which means that we can have a simple and effective test for the raison d'être of common currency union: how did GDP per capita fare since the euro introduction.

So let's take a simple change in GDP per capita, expressed in constant prices (controlling, therefore, for inflation) across the advanced economies around the world. Chart below details annualised rates of growth achieved between the end of 1999 and the end of 2014.

Excluding the most recent addition to the euro area, let's consider the original EU12. Across all advanced economies (34 of them), average annualised rate of real GDP per capita growth was 1.57%. Across the euro area 12 it was 0.727% - less than 1/2 of the average. Average for non-euro area 12 states was 2.126% or almost 3 times the euro area 12 average.

All of this translates into a massive gap between the euro area 12 (euro 'growthology' states that supported from the start the idea of 'sustainable' growth based on the EMU) and the rest of the advanced economies. In cumulative terms - over 2000-2014, EA12 states clocked growth of 11.674% in terms of their real GDP per capita. Over the same period of time, ex-EA12 advanced economies managed to grow on average by 40.01%.

Oh dear... even if you are not Italy or Cyprus (the latter made utterly insolvent by the EU inept 'resolution' of the Greek crisis and then promptly accused of causing this disaster upon itself - just to ad an insult to an injury), even if you are the 'best in the class' Ireland... within the euro, you are screwed.

So the key question is: where is the evidence that having a common currency results in better economic outcomes? Key answer is: nowhere.