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Automatic sanctions for a state that passes the 3% of GDP limit on the budget deficit.
This requirement establishes a structural bias for a Positive Feedback Loop in the Negative Direction for all eurozone governments during economic downturns and prevents government counter-cycle fiscal and monetary policy.
A recession, by definition, is a reduction in GDP.
Under the requirement as the tax receipts of a national government falls the amount of money the government can spend must also fall since:
The next step, as we have seen in Greece, is private capital begins to flee the national economy, looking for a "safe haven," further shrinking the available pool of capital needed to fund fund economic activity. This lowers tax receipts yet again, increasing the percentage of government monies needed for debt payments ...
And round and round we go.
She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
But the only way to square the 3% structural plus cyclical deficit cap at the sub-sovereign level is for some system of providing grants from the economic sovereign level to the sub-sovereign level, eg, the EU issues grants to the members in proportion to population equal to 25% of the excess of the EU wide output gap over 5% of EU GDP.
I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
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