Here is a prediction however. It is that the EU bail-out, even if it goes ahead, will fail (I said this about the first bail-out, but that prediction was made in private and doesn't count; I do however feel emboldened to go public on this one). It will fail because the austerity measures necessary for it to work will be intolerable to the Greek people. Even if the country is far enough away from the centre of the whirlpool for the measures to work (and it may well not be), the Greeks themselves won't put up with them. They'll bring down the government, or force the government to default, wholly or in part.
It's interesting to consider how the EU got into this situation, and what that says about what kind of institution it is. For those countries signing up to monetary union, there was a cap on how much money it was permissible to borrow. Many countries breached it, but the EU did nothing, or at least nothing concrete - letters were written; knuckles were rapped. No mechanism existed for penalising countries for breaking the rules. It could scarcely have been otherwise, because no electorate would have permitted its government to sign up to a currency where control of its own borrowing (and therefore its economy) was effectively handed over to an unelected Central Bank in another country hundreds of miles away. Handing over control of interest rates was bad enough, but this would have been politically unsellable.
So enthusiasts for the Euro set in place a project that was bound to fail sooner or later, because one of its members was bound to borrow too much, and would be unable to escape from its position by devaluing its currency. That's now happened to Greece, with other countries sliding towards a similar position.
In other words, faced between setting up a system which would inevitably fail, or not setting up monetary union at all, Eurocrats opted for the former. I am not viscerally anti-EU, but this looks like madness. Ironically Britain too received strictures from the EU for its borrowing even though we were not in the Euro at all. For such institutions reality doesn't matter - it is the outward appearance that counts.
Which brings me to Ed Balls's latest suggestion, namely that the UK Government cuts VAT by 5% or so to kick-start the economy. I don't know how much this would cost in lost revenue, but it would be in the region of billions. Where would that money come from? The money markets. Yes, that's correct. Balls is suggesting that in order to get the deficit down, we put the deficit up.
Perhaps I am slow, but I do not understand how this can work. It seems particularly counterintuitive when you consider that the first thing that would happen is that our borrowing costs would go up; that is, we'd not only have to pay interest on the extra money we'd borrowed, but we'd have to pay more interest on money we were going to borrow anyway, because the gilt markets would be worried that we had changed our minds about getting the deficit down.
This scheme of Balls', which incidentally he didn't think to clear with Ed Miliband first, reminds me somewhat of Milo Minderbender in Catch 22, buying eggs for 4 cents in one place and selling them at a profit for 2 cents somewhere else. It took me a while to realise that this was satire on Joseph Heller's part (I was young), and of course satire can't have been Balls' intention. I think his aim instead is to appeal to the vast majority of people in Britain who aren't interested in economics and don't have the faintest idea of how it works. His aim is to deceive.
I don't know what will happen to George Osborne's plan; no-one does. I've written previously on Osborne's gamble being, if anything a rather smaller gamble than the one proposed by Labour (just keep and borrowing and hope for the best). Interestingly, the gilt markets, gifted with no more clairvoyance than anyone else but at least removed utterly from the taint of political bias, seem to think Osborne is doing the right thing. We know this because the UK is paying very low rates on its borrowing. If the markets thought we were not going to get any growth, and the deficit never come down, we would be paying sky-high rates.
I sometimes think that with Osborne at the helm HMS Great Britain is sailing slowly in a fog, knowing that there are rocks somewhere but not knowing exactly where. Ed Balls, on the other hand, appears to know exactly where the rocks are. They are in the direction of Greece, and he is proposing that we sail that way full steam ahead.
