Tag Archives: balanced budget rule


Translated from the French by Tim Gupwell.

In the Wall Street Journal today:

Since the beginning of the crisis in 2007, one thing has become clear in European politics: the outgoing parties are not voted back in. Confronted by the incapacity of the governments and the majorities in place to resolve the problems of the moment, the electors – at least, those increasingly few and far between who still go to the trouble of travelling to the urns – vote for the opposition, whoever it may be.

In these conditions, the merry go-round can only make a restricted number of turns before passing to national unity governments, which are really warm-ups for some kind of dictatorship.

The French Government has only just celebrated its first 100 days in power, but it is not too early for it to start thinking about this new trend which is starting to emerge in the European electorates.

“What we need is audacity, more audacity and then yet more audacity!” This is exactly what is needed if we are to get out of the rut we are stuck in; even more so when this rut is merely symptomatic of the immense quagmire that the Eurozone has now become in its entirety.

Nonetheless, the European treaty which France has to ratify in October is anything but audacious. The famous balanced budget offers a false sense of security when things are going well – if indeed this could ever go well again– and it dramatically worsens the situation when things are going badly.

A nation’s expenses are not measured in Gross Domestic Product points; they are measured rather more mundanely by its fiscal receipts. The GDP is a poor yardstick at the best of times since the more it contributes to the destruction of the planet, the better it seems. But that isn’t even the point: in a world where jobs are fast disappearing and where the concentration of capital is scaling new heights due to the excessive manner in which the wealth created is distributed (and which we tolerate) the GDP of nations nowadays are like bodies attacked by a fever, and it seems therefore a very inappropriate moment to use it as a thermometer.

If, since 2007, those leaving power are no longer being re-elected in Europe, it is because they have kept a low profile, gone with the flow, waited for things to sort themselves out. However, unfortunately things won’t sort themselves out any more: the crisis we have endured since 2007 – a crisis stemming from substituting leveraging and easy credit for salary – is within a whisker of being transformed into a full-blown depression. This is what all this is about; this is what needs to be attacked, since there has already been a tremendous delay – five years in fact.

“The means must be commensurate with the gravity of the situation” said Barroso a few years ago. But neither him, nor any of his European colleagues, nor anyone at the head of one of the 17 nations making up the Eurozone, has really understood the true meaning of these words. Those who in the future speak as members of government, or as representatives of the French nation, need to bear these words in mind.

Marching in perfect unison works well for a regiment which is progressing calmly through the countryside, but here there is something else at stake: saving one’s skin as the bombs rain down!



Translated from the French by Tim Gupwell

Exceeding 6% on 10 year debt is already dangerous. According to the terms of the balanced budget rule, this signifies that a nation will require growth of around the same amount, whereas in fact Spain has registered a negative growth since the beginning of the year! So, 7.567% at 10.15  this morning! As the German 10 year Bund stands at 1.255%, this means that for Spain over 10 years there is a risk premium (for the possibility of the debt not being repaid) which can be reckoned at 6.312%.

© Bloomberg

Welcome to a world of mistrust! Moreover, when the risk premiums in rates for shorter term maturities reach, or even exceed, those maturing at later dates, it signifies that the capital markets presume that something is going to happen soon, and something not very pleasant. This morning the rate for 5 year Spanish debt is rivaling the rate for 10 year debt: 7.543% at 10.16. The 5 year German rate stands at 0.334% ; which means that in this case the risk premium for Spain is 7.209%. Translation: the danger over five years is considered as being greater than over ten. In other words, according to the capital markets, there will soon be new developments.

© Bloomberg

Le Vif/L’Express, « There is ALWAYS an alternative », June 22, 2012

This is an exclusive preview – in English! – of my column which will be published in the Belgian weekly Le Vif/L’Express this coming Thursday

The phenomenon is the way in which things manifest themselves to us, and this can be real – either with things appearing as they really are; or it can be deceptive – with things appearing other than they really are – such is the case for optical illusions for example which suggest a false reality. Where the Greek language said phainomenon, latin said apparentia, appearance, with the same two nuances as for phenomenon – either an appearance faithful to the nature of things, or, on the other hand, an appearance which is deceptive.

Why this talk about epistemology? Because of the Greek elections last Sunday, and the European political class which has fallen victim to an appearance which is deceptive: it thought that encouraging the Greeks to vote for the right-wing party New Democracy was a way of saving the Euro, fearing that a vote for the left-wing coalition Syriza, would signal the end of it. Whereas in fact the opposite is true

Why? Because the formula adopted so far to try to save the Eurozone has been a spectacular failure. To persist stubbornly with the same policy following the principle of ‘TINA’ (There is no alternative, the infamous words of Margaret Thatcher), is to be sure of pursuing the hellish spiral descent which was triggered at the end of 2009. The Europeans who are roped together like a climbing team (let’s not pull the wool over our eyes) are in spiritual turmoil. The ropes of its members are working loose one by one: Greece, Ireland, Portugal, Cyprus…. whilst the number of them looking to have a secure foothold – burdened by the weight of those already dangling in mid-air which is growing heavier and heavier – is reducing dangerously.

Continue reading Le Vif/L’Express, « There is ALWAYS an alternative », June 22, 2012


Translated from the French by Tim Gupwell.

The inept formulation of the financial stability pact, as well as the “balanced budget rule” which is derived from it, require (as I recalled in a recent column for Le Monde-Économie) a nation’s growth rate to be equal or superior to the level of the “average” coupon demanded by capital markets for its debts. Obviously, the lower the growth, the more a nation’s economy will be in danger, and the more an economy seems to be at risk, the more the capital markets will demand a higher “risk premium” component in the rate of this nation if it seeks to borrow. With the Balanced Budget Rule implying that a nation’s growth must be equal or superior to the average “coupon”, the famous scissors effect comes into play: “if one doesn’t want sovereign debt to increase when the growth rate drops, then this growth rate must increase rapidly so as to exceed the “average” rate of the debt – which is itself increasing due to the risk created by the fall in growth.”

Dear Parliamentarians, if you think that this is the most stupid thing you have ever heard in your whole life, then reconsider your vote, because there is nothing else at stake: it is really for this that you are about to vote!

Of course, it is perfectly possible to emerge from this self-inflicted nightmare by focusing on the comparison of expenses, which can lead to an annual deficit and the fuelling of a nation’s accumulated debt, with revenues instead. But to talk of revenues means talking of “taxes” and talking of “taxes” inevitably reminds us that in general the ruling classes of our nations are always tempted by the possibility of avoiding paying them either entirely or in part, which is why they prefer to talk in terms of “growth”, regardless of the liberties which thereby need to be taken with logic, mathematics and common sense in general.