I only gave a small menu of possible options to illustrate that there are ways to address entitlement spending other than immediate cuts to all beneficiaries. Countries would have to choose the path (mix of tax hikes, benefit cuts, and implemenation approach) that best fits their fiscal challenges, economic realities, and social needs. Except for the portion of the population that is held harmless e.g., let's say current group of pension recipients, the rest would have to make sacrifices under any benefit cuts. Letting inflation do the work would spread the pain over a large number of years. Introducing means testing for which a segment would be held harmless would avoid imposing cuts on those who would be in the worst position to deal with cuts.I agree, however that is not how it sounded and that is not how many right wingers sound when talking about such entitlements. Cut cut cut, without thinking of the consequences of such cuts. Every dollar/Euro you take out of entitlements is less spending by said group (especially the elderly), which means less growth and in fact I would claim higher overall costs.
Yes. But you cant really peg annual pension growth to inflation less anything. That would make the existing pension worth less while prices are going up...
I don't believe any decent society should or would take measures that would result in that kind of hardship.Nothing worse that hearing about elderly that are dead because they could not afford with their pensions to heat their homes or eat.
Markets don't always act rationally and there can also be market failure. During the Russian default back in the 1990s, one saw debt costs rise substantially in other developing countries e.g., Brazil, where there was no meaningful increase in sovereign debt risk. Fear can lead to sweeping reactions e.g., co-movements in prices, that extend beyond what is justified. Markets can and do go to excess from time to time.And yet the markets and speculators forcing this to spread to nations who are in no way as bad as Greece. Some even have better debt ratios than most major economies around the world. Take Spain. 53% debt vs GDP, a budget deficit that is falling and lets not forget the last decade Spain had a budget surplus!.. yea they do exist. I dont deny Spain has its problems (20 unemployment) but so do most other nations out there. That is why I suspect speculation being a large part of the attacks against Portugal and Spain, especially with the lack of attacks against all countries that are in a similar boat.. UK, Ireland, Italy, and the US.
IMO, the U.S. should be on negative outlook given its looming long-term imbalances and lack of commitment to date to begin to tackle those imbalances. I suspect that the ratings agencies will move in that direction in 2011 or 2012 if the U.S. fails to develop a credible fiscal consolidation program. The UK is on negative outlook. It is potentially troubling that none of the three major parties has offered much specificity on the fiscal reform front in the campaign for the May 2010 election.And? Seriously, if you have this view then the UKs and US's credit rating should be slashed several points because they are far far worse off than Portugal and doing nothing to change course, something that Portugal is. The UK budget deficit is way into the double digits as is the US. The UK growth is barely above 0.. one could easily claim if it was not for Browns spending then the growth would be massively negative.
I believe the 14.3% percent budget deficit was not entirely structural. The IMF published a structural figure of 7.9% of GDP. I can't speak for the ratings agencies, or specifically S&P who downgraded Spain yesterday, but I do know that the current account deficit is one important figure that is looked at. I also know that there has been a bias toward continuity and some countries can benefit from a "legacy effect." I suspect that the U.S. and UK still enjoy some legacy benefits.Last I looked Ireland had a debt vs GDP ratio of 65% and it had climbed from 25% to 65% in 2 year. The latest numbers from Ireland I can find say a 14.3% deficit on the state budget which is higher than the Greek and far far far higher than Portugal and Spain. Oh and that was a revised number by the Eurozone statistics office because the Irish did not .. lets say they pulled a Greece. On top of that the Irish are still having to bail out their banks.
Total debt can sometimes be important. If crowding out occurs when it comes to financing, a sovereign debt crisis could erupt, especially if a private sector debt crisis spills into the financial sector and then spreads from there.On top of that Ireland has some of the highest external debt holdings on the planet.. something like 1300% of GDP I believe. Granted it is a stupid number since it includes private debt (a large portion).