unemployment has just hit 25% in spain, ireland is not far from 15% and greece is .. probably has bigger problems than ireland and spain combined
if we assume for a moment that a push to balance budgets (or austerity) is good policy but bad politics on the basis
- long term budget deficits imply unsustainable debt and a debased currency, inflation, economic collapse
- austerity as a means to balance the budget is hugely unpopular because it means unemployment and adjustments to living standards
unemployment and abrupt lowering of living standards means crime, social unrest, dissatisfaction, and climates in which extremist parties can emerge. we're already seeing this in some european countries as far right and far left parties grow in popularity, the conditions in which fascism rose as a political force during the 30s. This has a far greater social cohesion cost than that of an unbalanced budget.
Therefore, lets not allow bad politics to destroy good policy. Why dont we provide some stimulus to take the edge of the austerity measures. The goal of the stimulus should be to create employment, not to prop up living standards. Stimulus has to be funded by EU (EIB) as funding not possible from national budgets because countries that need the stimulus are simply not in a position to do that. The EIB can get the cash to do this from ECB quantitive easing, some people wont like this but the reality is that euro liquidity is being destroyed by an ongoing deleveraging. A certain amount of quantitive easing is possible to the extent of the difference between money in circulation now compared to 2006. The stimulus should be conditional on some measures such that the country cannot get itself back into another situation that requires a similar stimulus program.
In ireland's case, the obvious place for a stimulus package is construction as that sector is under-utilised at the moment due to over provision of homes, office space in the boom years. Rather than let the skills in our construction sector emmigrate or move to a different sector, find some useful construction project that will be employment intensive. The goal is to get people back to work, not to get people currently working to switch jobs so the stimulus project shouldnt be competing for workers with non-stimulus projects.
This could be new rail links, public facilities, better water or sewage infrastructure, it doesnt matter as long as it's something that's genuinely needed, that would be done anyway if the govt had the money to do itself.
Which countries / sectors to receive stimulus:
- Countries with unemployment over 12%
- Target labour intensive sectors with the most unemployment
How to fund:
- materials, land; purchased by EIB
- labour; part EIB, part by state (at least to the value of the unemployment benefit saved because people are back to work)
- stimulus to be repaid over life of the created infrastructure by the users of that infrastructure (this insures it's a useful project)
- reduce unemployment below 10%
- reduce social unrest and dissatisfaction
- do not prevent any necessary adjustment to living standards (slowing rate of adjustment is ok however)
What do we think ?