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24 Apr, 2013 11:50

The end of austerity - dream or default?

The end of austerity - dream or default?

Now the currency debacle also known as the Eurozone has reached the point where one Portuguese politician is trying to tinker at the edges while the nation’s elder statesman is calling for a revolutionary default.

Back in 1979, Margaret Thatcher won an election campaign whose cornerstone was the poster “Labour Isn’t Working.” With corpses unburied, and rubbish piling up in the centre of London, it wasn’t such a hard sell to convince voters. Nowadays it is clear that the Euro clearly isn’t working either. True, it isn’t the dead bodies which are piling up in the streets, rather a generation of living talent is festering unproductively thanks to a remote elite obsessed with a political single currency built on sand.

For a decade the EU’s ‘leaders’ demonstrated the majestic oversight of a myopic underworld pimp running a dodgy red light district while issuing endless self-congratulatory messages that soon the Eurozone would usurp the regenerative dynamism of America. When ‘respectable’ governments like France and Germany bent the Euro rules, several less reliable nations realised they could borrow with apparent impunity and spend like footballers’ wives on speed.

Meanwhile in that lovely royal city of Brussels which is home to a remarkable number of Presidents, “President” Barroso, has decided that austerity isn’t working. Bizarrely he adds that austerity is the right policy but political issues precluding it working. This marks the first major difference between the genus Thatcher which oozed leadership from head to toe compared to the spineless limousine liberals of the EU subsidised by substantial tax-free salaries.

Apart from a vacuum of leadership skills, Mr Barroso is clearly an ,er, flexible thinker reiterating last week his New Year’s message that the Euro crisis was increasingly behind us...

European Union Commission President Jose Manuel Barroso (AFP Photo / Frederick Florin)

Mr Barroso prefers giving austerity nations more time to rein in their budget deficits. For those (like the EU) struggling to follow economic reality, this is a bit like telling a dying patient the painful tourniquet will be slightly tightened to let them bleed to death a bit more slowly. It’s longevity but hardly quality of life.

Soares has approached the haemorrhaging patient with a rather ruthless clinician’s logic: if debt is 124% of GDP (and rising) why squander a generation: we can’t pay our debts so we’re bankrupt. Time for a big bust, a grim year or two (qv right now isn’t such fun is it?) then rebuild the economy from the ground up.

It’s a devil’s alternative but Brussels and Berlin are uneasy that the apocryphal concept of default is increasingly mainstream thought.

Moreover default equals Euro departure which may kill off the currency or simply leave a rump resembling the Deutsch Mark...

True, Mr B may be suggesting more spending but what can a deeply indebted government spend? Without Euros they have no currency and bond investors have buyer fatigue. Without defaulting, leaving the Euro simply raises the debt burden in your new devalued currency...  Default now and repent at leisure says Mr Soares, Default and burn in an eternal hell of Germano-EU retribution runs the counter-threat.

Of course the problem here lies at the heart of the western political shambles of the crisis years. Idiot bankers, particularly in France and Germany, grew rich buying peripheral Eurozone bonds myopically rated as collateral equal in quality to that of fiscally prudent issuers. Now Mrs Merkel is squeezed in a pincer movement. Damned if she shovels cash through the main bailout orifice, she will be damned by her collapsing financial sector if the periphery default on the truly junk bonds which for a decade western banks swallowed with all the vigour of Homer Simpson at an all you can eat buffet.

Portugal hasn’t been this close to the epicentre of world events since Vasco Da Gama navigated the first direct trade route to India, handing Lisbon a monopoly over spices for decades. It was the first move of a great globalising wave of prosperity for Portugal. Can a default do the same thing? A little austerity loosening Barroso-style only prolongs the agony of Mediterranean youth... Soares has made a remarkable rallying call: in essence he has asked his countrymen to unite in a move to default or die. It certainly sounds like leadership, unlike the timid tinkering of his Portuguese counterpart in Brussels...

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.