Fiscal compact bans future borrowing - so why would default be worse?

[Roman Emperor]

A 3% limit is little more than a tiny overdraft facility. What kind of car would you be driving if your borrowing was capped at 3% of your income?...

Something like a '99 golf,which I must drive for the foreseeable future or until the NCT forces me on to a bike !

[Bongim77]

Fiscal compact approved last week: end of democracy, end of state sovereignty and a future of increased poverty. The austerity (that is the translation of the impossibility of deficit spending) will be a government law.

An essential addition about deficit spending:
If the state does not use deficit spending means that it's not providing new money to the country (100 are spent and 100 are returned through taxation). Only the state and the export creates new money that increase the quantity of money in existence. Without state and export, the amount of money does not change and it is only transferred between the population.

Reaction of the people: zero, absolutely nothing! They are still shopping, closed in their house in front of TV and computer! Congratulations!

We are fearful, ignorant, spoiled and we deserve to be crushed by the power!

There is a profound justice in the fact that the true power piss on our head and condemn us to despair. We deserve it.

We will blame ourself for our stupidity, but it will be too late!

[bob3367]

Fiscal compact approved last week: end of democracy, end of state sovereignty and a future of increased poverty. The austerity (that is the translation of the impossibility of deficit spending) will be a government law.

An essential addition about deficit spending:
If the state does not use deficit spending means that it's not providing new money to the country (100 are spent and 100 are returned through taxation). Only the state and the export creates new money that increase the quantity of money in existence. Without state and export, the amount of money does not change and it is only transferred between the population.

Reaction of the people: zero, absolutely nothing! They are still shopping, closed in their house in front of TV and computer! Congratulations!

We are fearful, ignorant, spoiled and we deserve to be crushed by the power!

There is a profound justice in the fact that the true power piss on our head and condemn us to despair. We deserve it.

We will blame ourself for our stupidity, but it will be too late!

Wow how old are you?

[Roman Emperor]

Borrowing is all very well but ultimately you must accept one basic principle....if you spend more than you earn you have only two options,either earn more or spend less and this applies to governments as much as it does to individuals.

[bormotello]

About €10 billion.

And our maximum borrowing would be €4.8bn.

i.e. we will pay 10 bn only to able borrow 4.8Bn
Default will give us profit 5.2 Bn

[Taxi Driver]

Only for capital investment. If we need it for current spending we have to make do with 0.5%. See previous post.

You don't know what the structural balance is, do you?

[He3]

You don't know what the structural balance is, do you?

The treaty language in this area lacks clarity. How do you interpret the provision?

[Taxi Driver]

Fiscal compact approved last week: end of democracy, end of state sovereignty and a future of increased poverty. The austerity (that is the translation of the impossibility of deficit spending) will be a government law.

An essential addition about deficit spending:
If the state does not use deficit spending means that it's not providing new money to the country (100 are spent and 100 are returned through taxation). Only the state and the export creates new money that increase the quantity of money in existence. Without state and export, the amount of money does not change and it is only transferred between the population.

Reaction of the people: zero, absolutely nothing! They are still shopping, closed in their house in front of TV and computer! Congratulations!

We are fearful, ignorant, spoiled and we deserve to be crushed by the power!

There is a profound justice in the fact that the true power piss on our head and condemn us to despair. We deserve it.

We will blame ourself for our stupidity, but it will be too late!

Ever heard of the velocity of money?

[Taxi Driver]

The treaty language in this area lacks clarity. How do you interpret the provision?

It is difficult to interpret. There is no agreed measurement for the structural balance. The DoF put our 2011 structural balance at nearly 9% of GDP. The IMF put it at just over 6% of GDP. I haven't seen a European Commission estimate. Regardless, they'll all be different.

Also all the rules are prospective rather than retrospective. It is only necessary that a government budget's to meet them rather than actually achieve them. To this end though governments must now use independent economic forecasts rather than their own.

If a country misses the 0.5% limit because something caused the forecasts to be wrong (i.e. it was outside their control) they just move on to the next year and budget to meet it then.

I think the balanced budget provision is overly restrictive but unless we know how they plan to measure the structural deficit we don't know how restrictive it will be. The overall 3% of GDP limit for the budget balance still applies.

[He3]

It is difficult to interpret. There is no agreed measurement for the structural balance. The DoF put our 2011 structural balance at nearly 9% of GDP. The IMF put it at just over 6% of GDP. I haven't seen a European Commission estimate. Regardless, they'll all be different.

Also all the rules are prospective rather than retrospective. It is only necessary that a government budget's to meet them rather than actually achieve them. To this end though governments must now use independent economic forecasts rather than their own.

If a country misses the 0.5% limit because something caused the forecasts to be wrong (i.e. it was outside their control) they just move on to the next year and budget to meet it then.

I think the balanced budget provision is overly restrictive but unless we know how they plan to measure the structural deficit we don't know how restrictive it will be. The overall 3% of GDP limit for the budget balance still applies.

Agreeing to something so vague and liable to interpretation is either desperation or stupidity. I don't think it is stupidity.