The head of the IMF gave an extraordinary interview to the UK Guardian (May 25, 2012) – Christine Lagarde: can the head of the IMF save the euro?. It is extraordinary because of the language used by the IMF boss and the almost shameless increase in the intensity of Troika bullying of Greece at its prepares for another round of national elections to attempt to resolve the impasse that was left after the last election. The Troika know full well that the majority of people in Greece hate austerity and support an alternative growth-oriented policy agenda. The Troika also knows that its spin that austerity means growth is not resonating with European voters who can read the newspapers and understand the blatant untruth of the fiscal contraction expansion narrative. So they are exploiting the irrational view held by the majority of Greeks that they are better off staying with the Euro. By making out that the issue is about membership of the Euro, the Troika are introducing fear into the voting process to reinforce the TINA line that austerity is the only show in town. The Greek voters will succumb to that fear because they do not appreciate that membership of the Euro is austerity under current arrangements.

The International Labour Organization (ILO) released its Global Employment Trends for Youth 2012 report today (May 22, 2012). It is harrowing reading and I will consider it later in the week. It tells us that youth unemployment is rising and will be unlikely to see any improvement until at least 2016. The ILO recommend a raft of government initiatives which would require budget deficits to expand. But, of-course, the dominant political narrative is to cut deficits in the false belief that this will engender growth. Exactly the opposite is happening and for good reason. I came across an article from 1982 today which tells us why austerity is dangerous and damaging. It also conditions us to understand that budget deficits are neither good nor bad but policy choices can be.

How bad is it going to get? That was the question that the UK Guardian asked the head of the UK Office for Budget Responsibility in an interview last week. It was in relation to the likely fallout if Greece defaults and leaves the Eurozone. He replied that the UK would be irreparably damaged. The fact is that Greece has already defaulted. The other fact is that if they do leave the EMU (which would be the best strategy) the impact on currency-issuing nations such as Britain can be managed away by sensible fiscal policy. For those who are predicting deep gloom the culprit is not the possible actions of Greece or any Eurozone nation but rather the irresponsible pursuit of austerity among sovereign nations. The reason Britain has a double-dip recession is all down to the decisions its own government have made. Organisations like the OBR support the flawed decisions with poor forecasting. Taken together this malaise reflects a mainstream macroeconomic framework that is incapable of providing policy advice which will deliver sustained prosperity to the population. The same flawed theoretical framework spawns the ever-growing hysteria about what will happen if Greece exits. The mania is reaching proportions similar to those a few years ago when rising budget deficits were predicted to cause huge hikes in interest rates and/or hyperinflation. All these forecasts fail because they are made by those who do not understand how the system works.