by J. D. Heyes (NaturalNews)
Just when you thought things couldn’t get worse for debt-ridden Europe, they have.
Last week, ratings agency Standard & Poor’s downgraded the credit ratings of nine European nations. Then this week, as if to add insult to injury, S&P downgraded Europe’s bailout fund, saying in essence that even the fund set up to shield other nations from the debt crisis is in financial trouble. Check and mate.
It was an unprecedented move, with France and Austria having their top-tier ratings lowered a notch to AA+, while S&P downgraded Italy, Spain, Portugal and Cyprus by two notches and Malta, Slovakia and Slovenia by one notch apiece. The move was especially daunting for Italy, because it put Italian bonds at BBB+, moving them perilously close to junk-bond level and making it harder for the government to raise money.
But look, it’s not like the downgrades weren’t a long time in the making. Socialist European nations have been overspending for decades because their politicians have over-promised benefits while creating mountainous hurdles to economic growth. Sooner or later it was bound to happen: Governments were paying out far more than they were taking in, but at the same time refused to make gradual cuts to programs in order to stem the bleeding. The result was obvious: A fiscal and debt crisis that threatens the very survival of these governments.
Worse, since the eurozone crisis began in 2008-2009, politicians have been unable – or unwilling – to take the concrete steps necessary to wean their people off the government dole, a troubling vicious circle not lost on S&P. The ratings agency said its decision to downgrade the eurozone base was grounded on a combination of economic and financial factors, along with “an open and prolonged dispute among European policymakers over the proper approach to address challenges”.
“Today’s rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone,” S&P said in a statement last week following its downgrade decisions.
Meanwhile, a deepening economic stagnation continues to hold the zone in a vice grip, stifling growth and stunting any chance at a fiscal revival. That, coupled with continued high unemployment and stagnation in the United States, has led some analysts to conclude that Western-style capitalism is in decline, while in Asia the economic gauntlet has been picked up and China, Japan and others are beating us at our own game.
Worse, the future doesn’t seem very bright. In the U.S., our crushing debt has already resulted in a credit rating downgrade by S&P. Moreover, we’ll be lucky to see unemployment dip much below 8.5 percent this year, while the economy limps along at about 2 percent annual growth (compared with 7 percent for Japan and double digits for China). That will continue making it harder for the government to take in the kind of revenue it needs to put a substantial dent in that growing mountain of debt we have accumulated. And it will make borrowing money more expensive.
Europe’s future is even more pessimistic, as the latest round of downgrading proves.
“There’s no crisis of capitalism,” Meghnad Desai, emeritus professor at the London School of Economics, told the Financial Times. “There’s a crisis of western capitalism, which has gone geriatric. The dynamic capitalism, with its energy, innovation and sheer greed for growth has moved east.”
Western capitalism is dying, and what’s worse, our leaders don’t have a clue – or the statesmanship – to figure out how to rescue it.