Sunday, October 28, 2012

Spanish Unions (Greek and Portuguese, Too) are Planning to Strike Nationwide ... Now That Will Solve Everything, Right?


A country's output of goods and services is simplistically referred to as its Gross Domestic Product or GDP. Government spending which is in excess of tax receipts is called the country's deficit. A country's annual deficits add to the country's debt burden. Debts have to repaid with interest at a future time.

A country raises funds by taxing a portion of its GDP to offset government spending. The basic idea, quaint as it may seem in today's debt crazy big government spending environment, is to raise enough in tax revenues to offset government spending. That keeps its deficits and debts from growing.

However, taxes also reduce incentives to work and serve to lessen the country's "investable" and spendable MOM portion of its GDP.

Thus, less government spending and lower taxes tend to fuel higher GDP. Higher GDP is always a good thing. Lower GDP is always a bad thing.

When work is not performed, there's less GDP and therefore less money available to a country's citizens to spend, including its government. In turn that means less money for the government to spend without impairing its financial condition by borrowing the additional money.

More government spending in relation to tax receipts, of course, leads to ever higher deficits and more borrowing, which in turn leads to lower GDP. It "crowds out" and reduces private sector MOM based economic activity. Got it?

Well, if you do, try telling all this to our government knows best gang. Or for that matter, tell the citizens of Europe, many of whose countries are drowning under a dangerous combination of too much government spending, too much debt and too little GDP. It's a terrible situation in need of a solution.


So what do the Europeans do? They call a nationwide strike to protest the situation, that's what. And a strike means less work and no GDP for the duration of the work stoppage. It's completely nuts. But it's a somewhat regular occurrence.

You see, European unions seem to enjoy striking in protest against government policies.

But I've always wondered what they intend to accomplish by striking. Aren't they in effect striking against themselves?

Then again, when I consider that public sector employees bargain and strike against themselves in the U.S. as well, I guess the Europeans aren't any crazier than we are.

But there is one fundamental difference. Our credit lines are still wide open to the U.S. government, so our public sector can still borrow to pay for all this government spending, at least for now, while many European governments no longer can.

So what do the Europeans think they can accomplish by striking? Do they mistakenly believe that this will pressure their international creditors to agree for some inexplicable reason to forgive their nation's debt obligations? Or are they just acting out of a sense of helplessness?


Let's zero in on Spain again today.

In fact, Spain's (and those of Greece and Portugal, too) debts belong to all Spanish citizens. So when the Spanish government, after all else has failed, implements 'austerity' measures to bring the country's public finances under control, they are doing so as a last resort. They have no other realistic alternatives as they've spent and borrowed themselves past the financial point of no return.

Spain's Largest Unions Call Nationwide Strike has the story:

"Spain's largest unions (have) called a nationwide strike, warning Prime Minister Mariano Rajoy of their opposition to his austerity policies as he negotiates the terms of an international financial bailout.

The strike announced by the General Workers Union and the Labor Federation will take place on Nov. 14, in tandem with planned general strikes in Greece and Portugal. Heavy budget cuts and high jobless rates have increased social tensions during the persistent debt crisis across peripheral euro zone nations.

As Mr. Rajoy tries to slash a towering budget deficit and shore up confidence in Spain's finances, social backlash against his policies has mounted. The new labor action will be the second nationwide work stoppage since he came to power in December. . . .

 Mr. Rajoy . . . said the strike won't help the economy.

"I'm aware that we're taking decisions that many people don't like. We're doing it because it has to be done and with it we're setting the foundation for economic recovery," he said.

The mounting social tension comes as a rising debt load and high borrowing costs have pushed Mr. Rajoy's government to start negotiating a second rescue. This one would help it meet its own financing needs.  . . . Madrid has said the €18 billion fund will suffice to cover the regions' refinancing needs this year. . . .

Observers say a Spanish bailout request is all but certain eventually. . . .

Still, a bailout for Spain could inflame social tensions further because of the potential conditions that could be attached. Mr. Rajoy is grappling with an economic contraction of a scale only surpassed in the EU by Greece, as well as a massive banking overhaul, soaring unemployment, and regional elections.

The government has trimmed unemployment benefits, raised taxes and cut central government workers' pay. It enacted a sweeping reform of labor regulations, began denying free health care to undocumented immigrants and has started to liberalize other parts of the economy.

Spain's unions have strongly opposed many of the government's austerity reforms and insist an international bailout request would lead to more budget cuts that affect the country's workers and middle class. The government has insisted that its reform agenda will help the country, which is mired in economic contraction, return to growth."

Summing Up

The time has come and gone for Spain, Greece, Portugal and others to successfully address their financial woes on their own.

As a result of their failure to do so, they have absolutely no bargaining chips left with respect to the healthier European countries who may agree to loan these countries enough money to keep them afloat.

Yet the unions say they will strike on November 14, so undoubtedly the workers will strike. And for what reason, I have no clue, other than an attempt to get sympathy. And how they expect that will happen I have no clue either.

In any event, whining is always the "in" thing to do by union leaders in Europe, and it takes the form of striking.

Meanwhile, Europe is a mess. A big mess. In fact, a colossal mess. And striking won't change that even one little bit.

European social-democratic welfare states are rapidly proving themselves to be lost causes in a globally competitive economy.

I hope We the People are watching and learning as the sad story unfolds.

Whatever happens in Spain, it won't be pretty. To the contrary, it's going to be downright ugly.

Thanks. Bob.

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