Tuesday, May 15, 2012

Europe is FUBAR

It's no surprise that Europe is doing badly, but I don't think most people really understand how badly Europe, especially the western and southern portions, are doing.  Take the industrial production statistics that came out yesterday which showed that Europe as a whole contracted by 0.4% on a monthly basis and fell 1.9% compared to last year. The numbers are bad, signifying a recession, but aren't necessarily horrible.  Two things need to be noted.  First, growth in eastern europe is buoying these numbers so that weakness in the larger countries is being masked.  Second, it's very important to take note where the absolute industrial production level is compared to years past.  Incremental declines of 0.2% or 0.1% really add up.  Take a look at this chart that I compiled of industrial production levels of select countries compared to 2005 and also what year those countries first hit this level (to give a sense of how far an economy has regressed).  It's really not pretty:

As you can see, Greece's industrial production is almost 30% lower than it was in 2005, the same level it was at in 1978 (Newt Gingrich was not even in Congress then and Pink Floyd's The Wall hadn't been released yet)!  That is over 30+ years of progress wiped out.  Spain is doing better but you can't really say it is doing "well" as industrial production there is 21% lower than 2005, the same level as 1989.  Go down the list, just about all the major western European economies are performing badly right now, except for Germany.  And just for a reference, back at the height of the recession in the US, our industrial production was just 11.9% lower than 2005. So right now the UK, Norway, Denmark, Italy, Spain and Greece are all doing worse than we were when it looked like to many in the US as if the sky was falling.

And I just don't see how things are going to get better anytime soon.  To cure the debt crisis, the European authorities have been throwing even more debt at is, making the eventual fall even worse.  Also, "austerity" has meant heavy tax increases, putting economies deeper into recession (something that could happen in the US as well, thanks to the massive scheduled tax increases that are coming in several months).  Take a look at this list of measures approved in Greece last year:
  • Taxes will increase by 2.32bn euros this year, with additional taxes of 3.38bn euros in 2012, 152m euros in 2013 and 699m euros in 2014.
  • A solidarity levy of between 1% and 5% of income will be levied on households to raise 1.38bn euros.
  • The tax-free threshold for income tax will be lowered from 12,000 to 8,000 euros.
  • There will be higher property taxes
  • VAT rates are to rise: the 19% rate will increase to 23%, 11% becomes 13%, and 5.5% will increase to 6.5%.
  • The VAT rate for restaurants and bars will rise to 23% from 13%.
  • Luxury levies will be introduced on yachts, pools and cars.
  • Some tax exemptions will be scrapped
  • Excise taxes on fuel, cigarettes and alcohol will rise by one third.
  • Special levies on profitable firms, high-value properties and people with high incomes will be introduced.
Seems like a great way to crash an economy, which is exactly what happened. It's no wonder that extremist parties did so well in the recent Greek elections.  The second largest party in parliament is now SYRIZA (gained almost 17% of the vote), which is a coalition of radical left wing parties (including maoist, trotskyite and traditional communist & socialist parties) with such names as Anticapitalist Political Group, International Workers' Left, Communist Organization of Greece and Renewing Communist Ecological Left.  And this wasn't the only communist game in town either, the official Communist Party of Greece gained another 8.5% of the vote.  There is even a Greek neo-nazi party called Golden Dawn which gained 7% of the vote.  It comes complete with a nazi salute and even a Greek version of the swastika.  If you add it all up, these three crazy authoritarian parties gained a whopping 32.2% of the vote (this number could go up soon as new elections are necessary after no coalition government could be agreed to by the various parties).  And this insanity is not limited to Greece either (thought he Greek parties seem to be especially extreme).  In France, Presidential candidates representing fascists, communists and radical leftists got 30.2% of the vote in the first round of voting.  As a reference, back in Weimar Germany, in the 1930 election, the Nazis and Communists gained 31.4% of the vote between them.    Just saying.

Cross posted from libertarian neocon's blog.


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