All down to entitlements?

I was reading up further on the financial crisis in Cyprus yesterday.

Banks are collapsing. These are private institutions, which have to be funded by public (government) funds if they are to survive. As a result of the fact that the government has insufficient funds to bail out the banks, and it cannot get a loan on terms that it can accept, then the country is faced with bankruptcy.

Of course when governments want loans they often have to borrow the money from private institutions. When they cannot repay those loans, they also face bankruptcy - check out Argentina and what happened when they decided not to repay private lenders in 2002.

Governments often get themselves into a mess with their finances anyway, see Argentina again. Mishandling the economy can lead to ruin. The factor though that is playing a significant role in the European debt crisis remains the bank bailouts in 2008.

The EU can seemingly be split into two groups when it comes to examining the debt crisis. The countries that got into difficulties through mishandling their economies (Greece, Italy, Portugal) and the ones that got into trouble directly as a result of the bank bailouts (Ireland, Spain). While they were not open to the same publicity one can also add that the UK and the Netherlands had to take drastic actions to bail out their banks, ABN AMRO and ING made up a total of 13% of the Dutch economy. The economies of both countries are experiencing severe difficulties as a result.

That is taking a fairly easy analysis though. I was checking out Portugal this morning. Check out this  article in the Wall Street Journal Europe dated  July 26th, 2011:
http://online.wsj.com/article/SB10001424053111903999904576469991876291306.html#

The Portuguese government was obliged to keep €12 billion to one side to help with bank recapitalisation. Without 2008 what would happen to that 12 billion? Would it have been needed?

And the question then follows as to whether governments are required to keep reserves, collected as taxation, purely to cover for the foibles (see yesterday's article) of private banks?

Take the banking crisis out of the equation, there was still room for governments to be more efficient maybe. Not to spend so much perhaps. But the debt crisis across Europe would be nothing like as severe but for the folly of the private banking system in the first part of the first decade of the 21st century. The figures are there, the proof can be checked out.

Of course there is the odd conservative out there who would like to have you believe the nonsensical argument that it is all down to entitlement expenditure. The point with this though is that the so-called "entitlements" have been a feature of government budgets for generations. They are frequently discussed, frequently amended. Sometimes added to, sometimes subtracted from.

What constitutes an entitlement is also interesting. One entitlement is, for example, the national justice system. Government spending on the courts, jails, paying prison wardens usw.

Do you really want to let some hoodlum walk free because you cannot afford to lock him up?

Then there is the education service. Should we abolish free education and go back to the illiteracy and innumeracy prevalent at the start of the nineteenth century? Or pay teachers peanuts with the consequence that the quality of education remains mediocre to say the least? Would the societies that we have benefit from it? A super-dooper hi-tech society run for the illiterate?

We should not be paying out so much money for the unemployed usw? Then create more jobs that pay a living wage and people do not have to go looking for help in difficult times - WHICH THEY WERE NOT RESPONSIBLE FOR CREATING IN THE FIRST PLACE!!!!!

About the last people who were responsible for the crisis that occurred in 2008 were the people who were on "entitlements". A close examination of the 2008 financial crisis will indicate quite clearly the disappearance of billions in values from the world economy was due directly to the irresponsible actions of private financial institutions. If we have reached the state where entitlements have to be cut, it is as likely as not down to the fact that governments have had to bail out what were the most affluent organisations in our cultures following their foolhardiness, and hence created more need for entitlements for which there is less money available (see Greece and Spain again). And not vice versa!