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Eurozone OB

The document summarizes several articles on the economic situations in Ireland, Russia/Ukraine, the PIIGS countries, and debates around austerity in the European Union. Ireland has seen remarkable economic growth this year after emerging from recession, while Russia has engaged in economic warfare with the EU through sanctions. The PIIGS countries have very high debt levels but are trying to reform their economies, and there is disagreement around whether the EU should continue its austerity policies.

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JKearns70
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100 views

Eurozone OB

The document summarizes several articles on the economic situations in Ireland, Russia/Ukraine, the PIIGS countries, and debates around austerity in the European Union. Ireland has seen remarkable economic growth this year after emerging from recession, while Russia has engaged in economic warfare with the EU through sanctions. The PIIGS countries have very high debt levels but are trying to reform their economies, and there is disagreement around whether the EU should continue its austerity policies.

Uploaded by

JKearns70
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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T HE P ENNSYLVANIA S TATE U NIVERSITY E CONOMICS A SSOCIATION P RESENTS :

T HE O PTIMAL B UNDLE
F ALL S EMESTER 2014: V OLUME E IGHT
N OVEMBER 4, 2014

E DITOR : J OE K EARNS P RINT E DUCATION C OORDINATOR


C ONTRIBUTORS : M IKE B ARNES , W AHHAJ I QBAL , J OE
K EARNS , C OLE L ENNON , C AMILLE M ENDOZA

Special Report on the Eurozone


The Newly Fighting Irish
Not all world economies are seeing disappointing news. The International Monetary Fund
announced that the Irish economy has grown at 7.7% this year, a remarkable reversal of
fortune since its emergence in 2013 from a recession. In fact, its current growth rate is much
higher than that of all other European countries. Irelands economic progress this year
shows that doom is far from inevitable for European nations. One reason for Irelands ascent is the healing property market, which has seen a 15% increase in housing prices. Low
borrowing costs also help, as the rates on their 10-year bonds that benchmark Irish investment have gone from 14.2% in July 2011 to 1.70% in October 2014. Irelands growth since
the crisis had been painfully slow and its GDP is still down 3% from 2008, but it is now the
European country best suited to break free from the catastrophic trap of persistently slow
growth. CL
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Once faring far worse than


its European counterparts,
Ireland now has the highest
economic growth rate of all
Eurozone countries.

Russia and Ukraine: The Crossfire of Economic Warfare

Ukrainian Prime Minister


Arseniy Yatsenyuk has
particularly harsh words
for Russian President Vladimir Putin.

As the European economy weakens, Russia has engaged in economic warfare with the European Union through sanctions on trade and business. Ukrainian President Viktor Yanukovych
recently reneged on an EU oil trade deal, after Moscow exerted pressure on him to undermine
western economic affairs and incite violent protests throughout Ukraine. Ukrainian Prime
Minister Arseniy Yatsenyuk argues that Russian President Vladimir Putin wants to reconstitute the Soviet Union, a claim which Russian officials have denied. Although Russia is no
longer a superpower, it remains a significant international economic force in energy. In fact,
the European Union receives 30% of Russian oil. Russia actually relies more on Europe due to
the fact the EU buys 80% of Russias gas exports, and 70% of its oil exports and 50% of its
cool exports. Although Russia is exerting pressure, it has made its own economy vulnerable
by overestimating its ability to withstand the crossfire of economic warfare.MB
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Are the PIIGS Out of Their Sty?


Doom nearly set in when the first domino fell. Starting with Greece in 2009,
other nations in the debt-stricken PIIGS (Portugal, Ireland, Italy, Greece, and
Spain) suffered lower tax revenues, high fiscal deficits, and ultimately an increase in the sovereign credit risk. The PIIGS have borrowed approximately
$6.3 trillion to stimulate their economies, but this course of action could hinder the Eurozone in the future. The debt to GDP ratio for these countries remain extremely high -- Spain has reached 93.9% and Greece takes top spot
with 175.1%. Their recent negative economic growth and high unemployment
rates could hinder their ability to pay these debts and the resulting interest. The PIIGS are trying to get out of the mud, but if they do not make significant economic reforms, they will be stuck for a long time. WI
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Citizens of the PIIGS


countries protest in response to considerations
of austerity.

Should the EU abandon austerity?


If its broken, fix it

The Austerity Boogeyman

As writer Leonid Bershidsky explained, European public


expenditure is about "preserving old inefficiencies as venerable traditions." In accordance with this observation,
the European Union continues to rely on the practice of
austerity to keep itself afloat. After the EU adopted austerity programs in 2008, these countries experienced
higher public-debt-to-GDP ratios and extremely high unemployment rates with relatively little benefit to their
overall economies. Some countries have caught on to this,
and are in the process of halting their austerity programs,
much to the chagrin of other European Union leaders.

How does a Nobel Prize-winning economist pass off fiction


as fact? Paul Krugman claims that European economic
troubles are being greatly magnified by harsh spending
cuts, which is simply false because the majority of European nations did not cut spending after the recession. Contrary to Krugmans argument, the debt-plagued group of
nations called the PIGSPortugal, Italy, Greece, and
Spaindramatically increased government spending from
an average of 43.2% of GDP in 2007 to 52.6% in 2010. It is
true that there was a modest decline in spending as percent of GDP in 2012, but the ratio of spending to GDP in
all of these countries remains 3% to 6% higher than it was
in 2007. Any criticism of austerity for its negative effects
on the PIGS is wrong because it was never truly implemented in the first place.

While Keynesian economic theory dictates that governments should increase government expenditure during a
recession, austerity's main goals are to reduce budget deficits by cutting government expenditure and/or increasing taxes. The EU chose to follow the path of austerity from 2010 to 2011, yet all of the countries experienced
increasing public-debt-to-GDP ratios. Eurostat reported
that the overall average of debt-to-GDP ratio was 70.1% in
2008 and increased to 90.6% in 2012. Some EU countries
even experienced the dreaded "double-digit unemployment rate." 2012 saw a record high average of 11.6% unemployment rate--Greece was at 25.1% and Spain suffered with 25.8%. These rates, along with the government
spending cuts, naturally provoked riots and general unrest among EU citizens who were angered by this illogical
fiscal policy.
Amidst pressure from other Eurozone members, countries like France are pursuing alternatives to austerity to
reverse its economic fortunes. In a statement, the French
government explained, "No further effort will be demanded of the French, because the government...reject[s] austerity." Economist Richard Wolff offered a feasible solution for France and other countries seeking to end their
austerity programs. He stated that austerity can instead
be obtained by collecting taxes from non-profit multinational corporations or tax-exempt institutions. This would
shift the burden away from the government and towards
other state institutions or private firms.
Despite assurances from the politicians who advocated it,
austerity has brought the EU back to the brink of an economic collapse. If member nations want to see any improvements in their debt-to-GDP ratios and unemployment rates, they will have to accept a hard reality: the system is broken and more austerity will not fix it. - CM

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Upcoming
Events:

The weak economic growth and high unemployment of the


PIGS undermines Krugmans argument when it is compared to the relatively strong economic performance of
European nations which actually did cut government
spending since 2007. According to economist Jeffrey Dorfman, six of the eight European nations that cut spending
had higher GDP growth than the European Union average.
Poland and Lithuania, two nations that cut government
spending, ranked first and second respectively in relative
GDP growth between 2008 and 2011. The two nations that
were performing below the EU average GDP growth, Iceland and Ireland, are now exceeding the EU average GDP
growth. Moreover, Dorfman determined that the correlation between government spending growth and relative
GDP growth for the thirty countries in Eurostats dataset is
-0.14. Reality does not support the theory that higher government spending will reverse the slow economic growth
of European economies.
The PIGS need to reject Krugmans prescription and follow in the footsteps of their global competitors. Rapidlyexpanding economies like the BRICs (Brazil, Russia, India,
and China) and the MISTs (Mexico, Indonesia, South Korea, and Turkey) recently averaged relatively modest levels
of government spending at 32.1% and 27.4% of GDP respectively. Given that EU Area nations growth rates have
been hovering around 0% for more than a year, they must
change course by preventing government spending from
growing faster than the private economies which support
them. End This Profligacy Now! -JK

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Nov. 4 Election Day

Psuea.org EA Homepage

Nov. 7 Unemployment Rate

Psuea.org/blog Education Blog

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