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god-fucking damnit.  Don't these idiots understand anything?

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:

  1.  The debt load (principal roll-over and interest payments) commands a larger percentage share of tax received

  2.  No new debt can be assumed

The result in a further decease in micro-economic activity since, again by definition, during a recession Private economic activity is decreasing.  So: during a time of decreasing economic activity the economy is hit by a double whammy: the private sphere doesn't increase economic activity and the public sphere can't.

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

by ATinNM on Sun Dec 18th, 2011 at 01:30:34 PM EST

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