Thatcher’s Fiscal Policies Are Still a Tough Sell for Europe

No, No, No !!! would say MaggieAs word of Margaret Thatcher’s death spread on Monday, it seemed fitting Prime Minister David Cameron was engaged in what had been billed as a European tour to bring the Continent around to her conservative way of thinking, particularly about Britain’s relationship with Europe. Mrs. Thatcher, many Britons said, transformed their country, opening way for sweeping privatization and deregulation, legitimizing wealth, unleashing acquisitive, entrepreneurial passions among her compatriots. Thatcherism, as it came to be known, never found fertile soil on the Continent, not even after the financial crisis and eurozone woes that have plunged much of Europe into an economic gloom at least as dark as that of 1970s Britain. Yet her BIG doubts about a “European superstate” and the common currency ring true today, nearly a quarter of a century after she resigned. She correctly predicted in her memoirs that Germany’s historical fears about inflation would lead to slow-growth policies that would deepen the problems of eurozone’s weaker, less efficient economies, which could no longer rely on devaluation to solve their problems. Mrs. Thatcher’s prescription for Britain in the 1980s, faith in market forces, willingness to impose short-term austerity in the service of long-term prosperity, and skepticism or even hostility to the fiscal and social costs of the welfare state, prefigured some of the policies Germany and European regulators are still recommending, wrongly in the view of many economists, for struggling Southern European countries. But few of those nations, even in the hard-hit southern tier, have shown the political strength or will to face down the entrenched forces, unions, state-owned enterprises, encrusted political elites, Mrs. Thatcher did, and the crisis drags on without resolution. It is an indelible part of Mrs. Thatcher legacy that her success in remaking Britain never drew the Continent closer to its cantankerous, offshore cousins. Nonetheless, remains the revered icon of British conservatism, a yardstick for true believers in free market and ability of capitalism to spread prosperity in a way that socialist redistribution never could. Within moments of the announcement of Thatcher’s death at age 87, Queen Elizabeth II and Mr. Cameron offered tributes to what he called “a great leader, a great prime minister, a great Briton.” Mr. Cameron said Parliament would be recalled on Wednesday for a special session in her honor (…..)



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Consultor Internacional

12 Responses to Thatcher’s Fiscal Policies Are Still a Tough Sell for Europe

  1. Professor Uziel Nogueira says: Despite her working class background, Thatcher incorporated a world and domestic view of the British Imperial ruling class. The famous No, No, No to EU integration exemplifies this view. Thatcher hawkish view on fiscal deficits and austerity policies was not ideological but economic reality. Prior to coming to power in 1979, Thatcher’s England resembled a third world country. Treasury bankrupt with a national debt and fiscal deficit out of control and inflation and unemployment typical of Argentina. Bank runs and frequent devaluations of the pound were common occurrence. In September of 1976, Prime Minister Callaghan was forced to ask for an IMF loan of $3.9 billion. The largest amount ever requested to the Fund, requiring additional money from US and Germany. In return, Great Britain had to implement a stiff 20 percent cut in public expenditure and reduction in the budget deficit. The (successful) IMF macroeconomic stabilization program reinforced a change in policy orientation away from full employment and social welfare towards the control of inflation and expenditure. The new economic reality was strictly followed by Margaret Thatcher and worked well. By the mid 80s, Great Britain became one of the most successful economic story among the G-7. Austerity can’t be popular among euro zone countries under budget and debt control in 2013. In England it provoked riots. However, such policy set the basis for economic prosperity of England in the 90s and beyond.

  2. Josh Hill: I agree with you about her accomplishment and find your comment refreshing, since so many of the comments here appear to owe more to ideology than to history. However, I think it’s important to note that the economic situation in the UK then was very different than it is in the Europe of today. Fiscal conservatism is no more the solution to Europe’s problems now than excessive government spending, socialization, and confiscatory taxation was to the UK’s then. Thatcher herself recognized this: she predicted exactly what would happen to the Euro zone — countries would be unable to devalue their currency and would be subject to Germany’s irrational fiscal conservatism, a product apparently of memories of the Weimar hyperinflation. It is ironic indeed that the UK itself is now a victim of the very misplaced fiscal conservatism against which Thatcher warned.

  3. A geographer: One minor correction for Mr. Nogueira from Brasil: Ms. Thatcher was NOT, repeat NOT, from a working class background. She was from what Marxism calls the petit bourgeois class – her father had a small grocery shop, a 1920s corner shop in a mid-sized market town, Grantham, Lincolnshire. And from what she wrote about her background, her family life and education had all the qualities found in that socio-economic class … and it had nothing in common with the English working class, living in cities, in major metropolitan areas, in industrial regions; working together to better their work conditions, their political voice, etc. I should know: I grew up in such a working class community, a half-generation later. And Ms. Thatcher was not loved by the surviving members of that community, even if the younger ones became beguiled by the prospects of money and consumerism.

  4. tomfrom66: Following Thatcher’s ‘Big Bang’ deregulation of the banks (1986) a series of housing bubbles has created the illusion of prosperity in England. It all came to an end in 2008 when Gordon Brown – and others – hid behind the argument that the credit crunch started in the USA. It was home grown, and it started in 1986.

  5. Professor Uziel Nogueira says: A geographer: Thank you for correcting my mistake about Ms. Thatcher social background. I should have known better the difference between working class and petit bourgeoisie. It has been so many years since I started reading “Das Kapital ” and never finished it 🙂

  6. Robes Mendes: “The basic and crucial political issue of our age is: capitalism versus socialism, or freedom versus statism. For decades, this issue has been silenced, suppressed, evaded, and hidden under the foggy, undefined rubber-terms of ‘conservatism’ and ‘liberalism’ which has lost their original meaning and could be stretched to mean all things to all men.” (Ayn Rand, in “Capitalism: The Unknow Ideal”).

  7. Professor Uziel Nogueira says: Ayn Rand “Atlas Shrugged ” is the American reading for wealthy kids attending some Ivy League school in New England. In Brazil, wealthy kids read Karl Marx “Das Capital ” while attending (free) public universities. As The Who songs says (wealthy) kids are all right.

  8. Boobaladoo: This is practically taken verbatim from Hayek. It figures that Rand would copy him, or what someone told her he said (she hardly read any philosophy or economics). The criticisms Hayek got for this assertion was that it is a shallow criticism of state socialism, which is only one form. The ideology for socialism is a structure from the bottom up, not top down. Hayek may have been looking at the Stalinist regimes, which were called “state capitalism” or “deformed worker states” by marxists.

  9. For more than two years, European leaders have pushed a cocktail of fiscal austerity and structural reforms on troubled countries like Portugal, Spain and Italy, promising that it will be the tonic to cure their economic and financial ailments. All the evidence shows that this bitter medicine is killing the patient. Portugal’s highest court recently ruled against cuts to the wages and pensions of government employees. Protesters in Spain have picketed the homes of lawmakers to demand better treatment of homeowners behind on their mortgages. And frustrated Italians cast such a large vote for an anti-establishment movement that the country still does not have a new government more than a month after its national elections. From the beginning, it was clear that economic austerity (cutting government spending and public benefits) and structural reforms (relaxing tough labor laws and privatizing state-owned companies, for example) could not be accomplished simultaneously during a deep recession. And that painful reality is playing out with no end in sight. In Portugal, the government of Prime Minister Pedro Passos Coelho cut spending and raised taxes so much that the fiscal deficit has fallen by about a third from 2010 to 2012. He also pushed through reforms to phase out rent control for tenants and legal changes that make it easier for companies to fire workers. The result is that the country’s unemployment rate has risen to close to 18 percent, from 12.7 percent in 2011. Economists say Portugal will likely have a bigger fiscal deficit this year than it agreed to in exchange for loans from other European countries and the International Monetary Fund, because national policies, not surprisingly, have made the recession deeper than anticipated. Portugal and other European countries, in the longer term, will need to reduce their deficits and reform policies that have held their economies back for decades. But, for now, this approach, beyond fostering economic disaster, has created widespread public anger and resistance aimed at domestic politicians. The biggest political beneficiaries have been groups like the Five Star Movement in Italy, which has refused to support any political party in forming a government and has called for a referendum on the country’s use of the euro. The real danger for Europe is that such movements will increase and voters and leaders in struggling countries will see less and less value in sticking with the euro. If countries start ditching the currency, it would cause widespread panic across the Continent and tens of billions of dollars in losses to governments, banks and investors in Germany and other richer European countries, not to mention in the rest of the world. What would help is if leaders like Chancellor Angela Merkel of Germany stopped insisting on austerity and helped bolster demand by, for instance, allowing weaker countries to issue bonds backed by the euro zone. That could put more into the economies and help lift them out of a downward spiral. Policy makers in Portugal and Italy would have a much easier time selling their people on the need for reforms if they weren’t also cutting popular government programs and benefits. Faster growth and lower unemployment would provide the resources that could later be used to pay down debts and reduce deficits. European leaders will find it difficult to admit that their approach is failing. But they should realize that staying on the current path is undermining public confidence in the euro and the larger European project. If they let those forces gather strength, everybody on the Continent, not just the Portuguese or the Italians, will be worse off. (source: THE EDITORIAL BOARD – NYTimes – 15/04/2013)

  10. Professor Uziel Nogueira says: Ms. Merkel faces a quandary on how to proceed in the euro zone from now on. The option of letting go weakest links of the common currency area has been abandoned after the bailout of Greece, Portugal, Ireland, Spain and Cyprus. This explain the strong opposition her party is facing in local and federal elections. The political mistake made by Ms. Merkel predecessors in admitting countries not ready for the euro cannot be undone. The only viable political option is to muddle through the problem. Extending the repayment time for Portugal and Ireland of their bailout loans is a solution that fits this muddle through strategy.

    How about the NYT proposal of weaker countries to issue bonds backed by the euro zone? the idea is good and makes financial sense. The problem all politics is local. Is Ms. Merkel ready to tell Germany’s taxpayers they will be liable to debt issued by the government of Greece and others from now on?

  11. The images we see from the capitals of Europe’s crisis-ridden countries are confusing to say the least. In the Cypriot capital Nicosia, for example, thousands protested against the levy on bank deposits, carrying images of Hitler and anti-Merkel signs, one of which read: “Merkel, your Nazi money is bloodier than any laundered money.” German Chancellor Angela Merkel was greeted by a similar scene when she visited Athens in October 2012. An older man with a carefully trimmed moustache and pressed trousers stood in Syntagma Square. The words on the sign he was carrying sharply contrasted with his amiable appearance: “Get out of our country, bitch.” Despite these abuses, the protesters and all of Merkel’s other critics in Rome, Madrid, Nicosia and Athens agree on one thing: Germany should pay for the euro bailout, as much as possible and certainly more than it has paid so far. They argue that Germany is a rich country that has benefited more than all others from the introduction of the euro, and that it has flooded other European countries with its exports, becoming more prosperous at their expense. But there is also a second image of Germany, one that’s based on numbers, not emotions. The figures were obtained by the European Central Bank (ECB) and released last week. This image depicts a country whose households own less on average than those that are asking for its money. In this ranking of assets, Cyprus is in second place Europe-wide, while Germany ranks much lower, even lower than two other crisis-ridden countries, Spain and Italy. And this Cyprus, with its affluent households, is now supposed to receive €10 billion ($13.1 billion) from the European Stability Mechanism (ESM), the Euro Group’s permanent bailout fund, and the International Monetary Fund (IMF), at least according to the decisions reached after dramatic negotiations, which the German parliament, the Bundestag, is expected to approve this week. But a new question is arising: Why exactly are we doing this? Isn’t Cyprus rich enough to help itself? In light of the new ECB study, a new discussion of the Euro Group’s bailout strategy is indeed necessary. So far taxpayers have born the risks of this strategy, by guaranteeing all loans the ESM has paid out to needy countries. Greece, Ireland, Portugal and Spain are already part of this group, and now Cyprus has been added to the mix. Germany is already guaranteeing about €100 billion in loans. If even more countries request aid and can then no longer serve as donors, the amount of money guaranteed by the Germans could rise to €509 billion, according to an estimate by the German Taxpayers’ Association.

    This figure doesn’t even include the latent risks in the balance sheet of the European Central Bank (…..)

  12. José Ángel Gurría (Tampico, México, 1950) está recién aterrizado en Washington para mostrar los resultados del trabajo sobre los impuestos que pagan las grandes empresas, que han hecho de la evasión fiscal —legal— todo un arte. El secretario general de la Organización para la Cooperación y el Desarrollo Económico (OCDE) es optimista sobre los resultados: lograr unas reglas de juego comunes para evitar los excesos y contar con el plan de acción en junio. Pregunta. Gigantes como Apple, Google o Microsoft pagan impuestos mínimos fuera de EE UU. La OCDE ha detectado que muchas multinacionales pagan el 5% en impuestos de sociedades cuando las pymes abonan el 30%. ¿Cómo es posible? Respuesta. Esa es la paradoja, y fíjese que en la situación política: en un momento en que los Gobiernos necesitan más dinero porque hay problemas de ingresos y gastos públicos. Así que los Gobiernos suben los impuestos, ¿a quién? A las pymes y a las familias, porque a los otros no hay manera. Obviamente, no funciona. ¿Pero cómo pueden combatir unas prácticas que son totalmente legales? R. Precisamente porque es legal es mucho más difícil, una práctica generada en todos los países del mundo que tienen multinacionales y los que se interesaban por tenerlas. Por eso hay que dar una buena mirada a las leyes y las normas para cambiar eso, pero hay que hacerlo de forma coordinada, porque de otro modo no iremos muy lejos. Pero eso suena parecido a cuando los países acuerdan luchar de forma coordinada contra los paraísos fiscales…R. ¡Y lo logramos! Lo hemos conseguido de forma espectacular, 120 países se reúnen de forma regular y ahora tenemos el acuerdo para intercambiar información. El movimiento siguiente es pasar de esa información previa solicitud a una automática. El asunto de los impuestos es más complicado, las leyes lo permiten, por eso hay que cambiar las leyes. ¿Cómo ha sido la interlocución con las grandes empresas? R. Esto no va en contra de las empresas, lo que les va a dar en primer lugar es seguridad jurídica para que no haya doble imposición. Antes el peligro era la doble imposición, ahora es la doble no imposición…¿No cree que la presión de las grandes empresas podrá frenar estas medidas? R. Deben entender de qué se trata esto: de que ellos ayuden con su parte proporcional, pero también de protegerles de malas prácticas.


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