The sovereign debt crisis in Europe is blamed on innocent wage earners for receiving supposedly unsustainable high wages and excessive social benefits. But what did contribute to loss of government revenue and fiscal deficits?
1.) The economic recession, which is caused by credit market failure as the result of allowing a fraudulent accounting in structured finance.
2.) Tax evasion and avoidance by the rich with non-wage income.
3.) Governments borrowing huge sums against future revenue from public sector enterprises without showing the liabilities on government balance sheets. Structured finance was providing participating governments with up-front cash while hiding the sovereign debts that had to be paid back in the future. But the bulk of the borrowed money went to the pockets of deal-makers of public sector privatization while the debts were left with society at large.
4.) Disparity of income between waged-earning masses and the financial elite with income from profit and capital gain causes overcapacity in the economy. The European response to overcapacity was to shy away from the obvious solution: raising wages. Instead they flooded the economy with huge mountains of consumer and corporate debt that eventually resulted in enormous borrower defaults resulting into a global credit crisis.
5.) Bailing out the banks with the public’s tax money resulted in a sharp increase of public depth. Figures from the German Bundesbank showed that in 2008 and 2009, some 53% of Germany’s new public debt was used to rescue distressed financial institutions. The total new public debt rose by €183 billion in those two years; the costs involved in supporting distressed financial institutions amounted to €98 billion.