The first word we will define is Austerity.
1. Severity or plainness: severity of discipline, regime, expression, or design
2. Economy pressure: a saving, economy, act of self-denial, especially in respect of something regarded as a luxury
3. ECONOMICS enforced thrift: thrift imposed as Government policy, with restricted access to or availability of consumer goods. (1)
Fig Tree Blossoms in 1960 Africa.
All these changes took place a vacuum of spaces created predominantly in Europe's back yard and in the hands of previous colonial masters who had become accustomed to living off foreign governments in old colonies. A flurry of requests for independence had also characterized life In the 1960 also had unexpected results on an economy that was being driven by Foreign labor, commodities much like what had happened previously in the Americas and in the U.S itself when the North and South were forced to contend with each other on the questions of slavery and the benefits of human labor in the predominantly agrarian south. Island nations that were producing spices, coffee, cotton, sugar were also bound to suffer if these changes were implemented much too quickly. Trace the path of European decline in the seventies and you will find former colonial giants of shipping and trade beginning to feel the pinch of a loss of major services.
Europe and Austerity in the 1970s.
Marshall the 'Troops'
These marked changes in the economies of Europe after the second world war could be traced back to the Marshall plan and the monies that was pumped into the struggling economies of the day to inject some much need growth and redevelopment in the war-devastated economies. But given what we have learnt about Foreign led growth and the consequent effects of the same on struggling economies maybe the decline of the European economies after yet another war was a sign that external investment cannot be viewed as a long term method of driving true sustainable growth.
Commodities and the rise of Regional Powers.
Most of the challenges that are mentioned in regards to Europe in the seventies hinge on the energy crisis, most particularly the price of oil, which had quadrupled since the Middle East war of 1973. The result was projections of double digit inflation for at least a decade in Europe. great. Great Britain was facing price rises o 17%, Italy was dealing with rises of 20% and Spain and Portugal were dealing with upwards of 30% price increases. Measures like a freeze in prices and wages had limited success.
Premier Raymond Barre succeed in stabilizing the franc and reducing the deficit but the latter remained high and growth slowed and unemployment did not decrease. Barre was attacked both by Socialists and Communists on the left and by Gaullist followers of premier Jaques Chirac on the right.
The Rise of the Foreign Banks and their Bailouts
Austerity plans were adopted by Great Britain ($3.9 Billion), Spain, Italy ($500 million from the IMF and $500 million from EEC) and Portugal ($49million had been given in April of that year to offset a deficit of $1 billion) . These plans had conditions that were attached to them with large loans from the International Monetary Fund. As discussed in the previous post on Bubbles, the discussion around loans further raised fears of the effects on local economies that infused capital from outside would affect economic sovereignty ad governments freedom of action.
New Tactics for Modern forms of Economic Warfare
Several major changes occurred firstly, Growth rates slowed in Europe (3%) while the rates of growth for the U.S and Japan rose (expansion rate 5%). Rapid growth and austerity are difficult to achieve simultaneously. Secondly, foreign investment in Europe went to other economies (investment from oil rich states).
Thirdly, wages rose as a natural effect of inflation and a decline in productivity. Fourthly, the cost of European goods for export was expensive bringing about a trade imbalance
Revival of Capitalist Communist Debates and Thinkers
Fifthly, unemployment. In countries that had strong leanings toward communism and socialism or those who sought to marry different economic tendencies the natural result of unemployment was the return and revival of trade unions and workers movements the start of uneasy debates between capitalist thinkers and their marxist opposites.
It was these conditions that brought about a major shift to the left, which is also common in the present day, the rise of the Iron Lady an her assault against the Trade Unions in the U.K, the trio of Reagan, Gorbachev and Thatcher, as wells as pressure on the Soviet Union and the Berlin Wall. (3b)
Europe and Austerity in the 1990s.
Sweden-a case for mixed economies.
For a long while (since the 1930s) it seems as though the decision of the Swedes to marry two systems of economic development provided some insulation from economic challenges that confronted other European Countries. This they did by splitting their economy into a 'local' and and 'an other'. The local was made up of cooperatives and unions that managed key aspects of their economy and development. They ensured through these groups that simple commodities were transformed and maximized to benefit locals. The energy then invested in the development of these local industries was then pumped into controlled Foreign exports whose profits were returned to members of the same. This model was affected by a recession in the 1990s. The result was a drop in employment and a budget deficit. The government decided to respond using some austerity measures which included tax reform, reductions in civil service employment, cuts in social-welfare programs and partial privatization of some state owned enterprises( postal services, telecommunications and railroad transport). The result was a reduction in the public sector, a restoration of confidence in the Swedish economy and an economic recovery that slowed the economic downturn of 2001. (2)
Italy-Politics, Religion, Economics and their effects on Austerity
In 1995 Lamberto Dini, Berlusconi's treasury minister, was appointed prime minister to lead a politically neutral transitional Government. There was uncontrolled public expenditure, political corruption, an unproductive public sector all of which contributed to the budget deficit and a rising national debt. Dini's response was to pass an austerity budget, to reform election system, state pension system and to enact rules that controlled political access to TV. He resigned in January 1996 but continued in office until April.
Elections in that year brought the communists into power for the first time in Italy's history as a republic. Thus the country began its shift to the centre-left. Also notable during this time was an attempt toward separation from a more 'productive' north which failed to win popular support when the idea was floated in the election.
The national election brought into power 56 year old Romano Prodi (a mix of economics and religion) economist and former state conglomerate. He defeated the centre-right leader and media magnate Silvio Berloscuni former prime minister. Perhaps this time around the effects on Media that had been attempted a few years before by Lamberto Dini would now gain fresh momentum.
It was also another time of firsts in which Italy's evolving political system had generated two opposing major candidates for prime minister before citizen voted.
Unable to win a majority an Olive Tree coalition was formed which brought in a formerly communist party the PDS (democratic party of the left) which had given up Marxism after the fall of the Berlin wall resulting in
loss of its core group from the Reformed Communists. Their 21% added to the 35% of the original bloc. The new government attracted other prominent leftists like Massimo D'Alema (party secretary), Walter Veltroni (PDS second in command), Georgio Napolitano (Interior Minister) and Vincenzo Visco (Finance Minister), Lamberto Dini(former prime minster was appointed Foreign Minister), Carlo Azeglio Ciampi (former premier and political independent become treasury minister), and Antonio Di Pietro (former Star prosecutor who headed operation clean hands investigation was appointed Minister of Public Works but later resigned after charges of abuse of office were brought against him).
Prodi wanted to work on public finances (a criteria for joining the European Monetary Union),deal with the threats of succession by the Northern league leader (Umberto Bossi), reform of the constitution along federalist lines as well as the creation of a winner takes all voting system (to replace the proportional representational system).
Of all the challenges mentioned above the only external challenge that would affect Italy's future was that of the Monetary Union. The rest of the issues strictly speaking we're internal, with hybrids such as the corruption cases or trials off terrorism suspects (Majed Youssef al Molqi) that affected the perception of the Americans on the Italian Justice System (Giovanni Brusca, Giovanni Falcone).
The appointments were important because they helped determine what the coalition government would focus on in the years to come because on the whole, the men that were placed in positions of power were all major pieces in the political 'games' that characterized the functions of the the nation in the years previous. It is no wonder that Berlusconi was castigated and later tried in connection to kickbacks to tax inspectors of his Fininvest media-to-retail conglomerate (possibly a consequence of the over exertion of his media power in the past and present-the present bribery charges notwithstanding). (4)
1. Encarta Dictionary
2. Microsoft Encarta 2008, Microsoft Corporation 1993-2007
3. Collier's Year Book (for events of 1997). Monthly updates in Encarta Yearbook).
3b. Microsoft Encarta 2008, Microsoft Corporation 1993-2007
4. Microsoft Encarta 2008, Microsoft Corporation 1993-2007
Key Words: Austerity, Debt, Credit Rating.
Both this article and the previous one have only dealt with two issues on a regional basis with some more I depth coverage of some European countries like Italy. The responses used my most countries and their Central Banks are universal.
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