The Spanish rescue program, although the largest of all programs up to now (Greece, Portugal and Ireland), will require no austerity measures by Spain. This inspires an interesting philosophical question whether this is good for Spain, or is bad. The anathema of austerity and making it a major subject of criticism is not clear whether it is a sign of healthy thinking. Or is a sign of the next stage of the disease.

The question if austerity is a disease or is a medicine is fundamental to the current historical moment. My personal opinion is that spending cuts are the only available, although very bitter, medicine. If not adopted, the system will go worse and soon we will have much more troubled economy. And even much bigger spending cuts will be needed, with a reduced chance of improving the situation. It is absolutely possible the situation to become catastrophic and non redeemable. Postponing the healing can lead to no healing possible.

Another philosophical question is whether the retreat from austerity is useful for the donors of bailout funds. Having set a precedent to give money, without asking for spending cut reforms, will change all old bailout programs. It will affect also all future aid that will have to be given without or with less austerity measures. Such evolution threatens to convert the emergency loans into a non-refundable "social" payments (a kind of a gift), as for the creditor austerity measures are the guarantee that he will have his money back. This is the proven from more than a half of century practice of IMF. The troubled countries can repay their loans only via strict fiscal discipline and austerity. Loans without austerity reforms may become a "wasted money".

So soon we will see the answers of these 2 philosophical questions. I think they will be quite bitter answers ... :)

Dobri
June 11th 2012