Posts Tagged ‘debt crisis

COLUMN: Kent – Europe’s fiscal collapse does what two wars couldn’t, Germany is now in charge

- May 13th, 2012

Germany owns Europe

Canada’s brand of fiscal conservatism ignored by big spending European political leaders

by Simon Kent

No less an aesthete than the great Sylvester Stallone once observed “if bad decorating was a hanging offence, there’d be bodies in every tree.”

Change the word “decorating” to “fiscal management” and you have a pretty good idea of the state of financial chaos across Europe right now.

You also know where a lot of former European finance ministers would be hanging out these days. Literally. Read more…

Deal with government debt now

- November 28th, 2011

France's President Nicolas Sarkozy, left, welcomes Germany's Chancellor Angela Merkel at a meeting in the eastern French city of Strasbourg November 24, 2011

I don’t spend a whole lot of time looking at the international financial markets, I simply don’t have that much money to care.

Maybe that should change.

Earlier this week Germany, the strongest economy in Europe, tried to raise money by issuing debt in the form of bonds. Despite being a good credit risk, they couldn’t do it.

Europe’s debt problems are well known by now, but the fact that they are hitting Germany should worry Canadians.

In September of 2010, the last time I wrote a column about Canada’s federal debt, the tally stood at $543,022,147,241.02. Now that debt is more than $571,400,000,000.

Add in provincial debt and Canada stands at more than $1.1 trillion in government debt.

Think about that for a minute and ask yourself if you can even comprehend what a trillion dollars is. I can’t but I do understand that we owe more than $32,000 for every man, woman and child in this country.

Of course that’s not counting the debt increases we can expect over the next several years.

Federal Finance Minister Jim Flaherty has announced it will take longer for him to balance the books and stop spending more than he is taking in.

On Wednesday, it was Ontario’s turn.

Finance Minister Dwight Duncan announced that his province will have a deficit of $16 billion this year, $2 billion higher than expected. Ontario’s public debt is

$251.9 billion plus another $15 billion in unfunded pension payments that taxpayers are on the hook for.

How does all this relate to Germany’s inability to sell bonds?

Just to finance itself Ontario will have to sell $35 billion worth of bonds this year. The province’s credit rating is only AA rather than the higher AAA ranking of the federal government, indicating that Ontario is considered a higher risk.

While no one expects Ontario to default on its debt obligations any time soon, just like with personal credit ratings, a lower score means a higher interest rate.

If Ontario, with a worse debt situation and poorer credit rating than Germany has trouble selling its bonds, then the province’s books will be in even worse shape, meaning tax hikes or service cuts in the near future.

A hike in interest rates would do the same thing.

Quebec is in even worse shape. With a smaller population and economy, Quebecers are on the hook for $163 billion in government debt, a figure that represents 54% of the province’s GDP. Like Ontario, Quebec is run by a government that promises more than it can pay for.

Governments have spent the last few decades trying to tell citizens that they can have it all and not worry abut the bill, but that bill is coming due.

If the federal and provincial governments don’t clean up their budgets and control their spending in the next couple of years, they will only be able to pay for pension promises they’ve made to civil servants.

While billions upon billions in pension promises have been made to civil servants, those billions of dollars have not all been set aside.

As baby boomers retire in greater numbers, Canadian taxpayers will be forced to pay for their neighbour to enjoy the retirement they themselves will never have.

If government books aren’t put in order soon, the pain people worry about now will be nothing compared to the pain we’ll all experience in the future.

We just hitched our economy to some shaky wagons…..

- August 7th, 2011

The Euro is sinking and Canada just got tied onto it. A sculpture showing the euro currency sign is seen in front of the European Central Bank headquarters in Frankfurt. REUTERS/Alex Domanski

In his Sunday morning column, John Robson used a mountain climbing analogy to describe the European debt situation. “When people go rock-climbing they all tie into a rope for safety. But you also have to tie the rope to the cliff or it just guarantees that a slip will pull everybody down,” Robson wrote.

He added a bit later that all the countries were tied together but without any of them tied off to anything secure.

“At this point many people are hoping the European Central Bank can buy various governments’ dodgy debt. Where do they think the ECB gets its money? Let’s see: Andreas is roped to Juan, Juan is roped to Guido, Guido is roped to Pierre, and Pierre is roped to… Andreas.

Now hang on. Everybody’s roped to Helmut and he’s really really strong. Right? Anyway, let’s throw a few more loops around him so if we all fall together we make sure he goes too. That way, not one European economy will survive which is good because… look, has anyone here done any actual climbing before?”

Now it turns out, Robson was right and the European Central Bank, which gets its money from members of the EU, will buy the bonds of Italy and Spain.

That’s right, the bank backed by France, Germany, Italy, Portugal, Spain and the like will now start buying bonds, essentially debt, of the countries they get the money from. It’s a bit like a husband and wife living off of one income, the husband gets into too much debt and the wife says that she’ll buy the debt to keep things moving.

Markets didn’t react well, Tel Aviv’s stock exchange closed for 45 minutes to let investors cool their heels after stocks fell 6% at the open. That didn’t work, they were down 7% by the end of the day.

But don’t worry, it gets worse, you and I are going to pay into this as well. On Sunday, G7 finance ministers promised to take action.

From their statement:

“In the face of renewed strains on financial markets, we, the Finance Ministers and Central Bank Governors of the G-7, affirm our commitment to take all necessary measures to support financial stability and growth in a spirit of close cooperation and confidence.”

Great, now we are tied on to Helmut, Pierre, Guido, Andreas and Juan. This is going to go great.

They went on:

“We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth.”

Translation, if markets react badly to the pile of baloney we’ve been trying to sell to voters and investors, we will intervene to try and manipulate the markets.

“These actions, together with continuing fiscal discipline efforts will enable long-term fiscal sustainability.”

Now that’s the real funny part, fiscal discipline!

This from the government that hopes to balance the books by watching revenues grow from an estimated $235 billion this year to $296 billion in 2014-2015 while spending growth is kept to just a $12 billion increase – from $271 billion to $297 billion.

When the Harper Conservatives came to power they inherited a budget at stood at $292 billion. In five years they have driven up spending by $75 billion and they expect us to believe they will keep a lid on spending now?

Maybe Jim Flaherty forgot what he was doing last week? Subsiding Toyota, farm equipment manufacturers, festival tents and lots of arts funding and sticking you the taxpayer with the bill for all of this.

Again, markets are not doing what they want so the government is trying to get it to act in a way that it prefers.

People, this is not about Conservative or Liberal, or even NDP. They all believe in massive government intervention in the economy and when that doesn’t work, they believe in applying more of it.

You need to stop looking at party label and start asking whether the person you will vote for, be it at city hall, the provincial legislature or Ottawa, is just another go along to get along guy, or someone who will try to end this madness.