Meanwhile, the EU/IMF bailout package for Greece, which does include draconian budget cuts, contains a 2 percentage point increase in the VAT tax that is anti-growth.
Steve Forbes correctly said last night on CNBC that the Greeks should be slashing spending and should move to a flat tax, just like the countries in Eastern Europe. I gave him a Nobel Prize for that. (Watch the entire interview here.)
Market chatter, at least in Europe, is suggesting that the $150 billion bailout is not enough. But it may be that the left-wing union mobs in Athens have caused a major backlash throughout Europe and elsewhere. Despite the mob, the Greek parliament was able to pass legislative approval of the bailout package. This caused a small stock rally for a brief time this morning.
The German parliament will vote tomorrow on this package. Should it be voted down, all hell will break loose again in world stock and credit markets.
And then there’s Britain. The Tories may win a close election tonight and dethrone Labour. But if so, David Cameron & Co. will be a minority government.
I still believe that one of today’s key themes is a global revulsion toward the massive spending and debt programs put in place by the U.S., Euroland, the G20, and the IMF back in late 2008 and 2009. Unwinding these Keynesian mistakes is not an easy thing to do. But financial markets are now exerting discipline on this out-of-control spending and borrowing.
Financial markets don’t like these big-government policies at all. Neither do voters. The markets don’t trust the ability of these nations to service the interest payments on all this new debt. And voters are much opposed to the tax-hike implications of the debt.
In particular, the U.S. and the Western countries in Europe have lurched left in recent years. It’s bad for growth, it’s bad for credit quality, it’s bad for banks, and it smacks of credit-deflation bankruptcy.
In short, it’s a bloody mess.
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