Harper's misreading of the European debt crisis
Posted in Media Tips - Economic and Financial Issues
February 7, 2012 - Prime Minister Harper assumes a strong causal relationship between (too high) welfare state standards and the sovereign debt crisis of Eurozone economies, and thus pleads for even stricter austerity programs in Europe and for precautionary reductions of entitlements in Canada. This approach has a few merits but also very strong limitations, and more so, there are limits to apply the basic ideas to the complexities of the Eurozone crisis.
Dr. Kurt Huebner says that empirical findings as well as theoretical considerations do not support the causal ties between the level of welfare state spending and the Eurozone crisis:
"The financial crisis started 2008 and it is an established empirical fact that, in general, the sovereign debt default crises are a consequence of private indebtedness. If too high entitlements, in other words, high welfare state standards have caused the sovereign debt default crises, we would expect that societies with the highest and most generous welfare states would be top-ranked in the group of sovereign debt default economies. According to general prejudice this would be Sweden, Denmark, Norway, Finland and Germany, Austria and the Netherlands. But those economies are ranked in the top of the group of economic high-achievers. In other words: making a causal link between sovereign debt crises and welfare state entitlements is not confirmed by empirical data."