The new wave of crisis hit the world economy

The question of fiscal consolidation

In brief: A recession is the main problem of the world economy. Eurozone economic problems were far worse than the problems the United States.

Market pressures brought the issue of fiscal consolidation in the first place on the agenda, so the controversy over the austerity measures have a distinct ideological overtones. Supporters of the fiscal consolidation is often blamed for the fact that they are pushing the world economy to the brink of a precipice called a recession, it is believed that once the policy had saved us from the Great Depression, they will not cause us any harm, and can be fully relied upon to select the correct fiscal way.

These arguments are misleading and increase the risk of making wrong financial decisions, negative effects on market sentiment and rising tensions in the international arena, pitting Germany for a number of Eurozone countries and the United States. Politicians need more clarity and objectivity. Before the developed economies is real and serious financial problem, which requires an adequate solution. In addition, the restoration of financial stability at the expense of large-scale financial regulation does not mean that the world economy is doomed to a new recession. Many solid work on the economics prove that the financial decline could be directed at stimulating growth, especially if it is achieved by continuously reducing costs, primarily in economies with a high degree of state participation in the GDP. Time of Keynesian fiscal expansion was the correct measure to combat a recession that began after the collapse of Lehman, – and it proved to be more effective, while a substantial reduction in taxes – but a permanent increase in government spending and deficits would be counterproductive. Moreover, the financial adjustments that began in the euro area are not of such magnitude as happened in the past: the major economies, only France is planning to active measures, while Italy and Germany intend to reduce the deficit to GDP ratio gradually and in small volume. Hence, fears that the European “race towards austerity” may disrupt the recovery, too exaggerated, in front of Europe should adopt more stringent and well-coordinated action to reduce public spending to reduce deficits and increase their capacity for growth. European policymakers should focus on the quality of fiscal adjustment and use the fear of debt crisis to increase efficiency and competitiveness of their economies. Markets are scared unpleasant surprise, which presented the financial accounts of Greece at the end of last year, thus, appeared on the agenda the issue of financial adjustments – in Europe, this resulted in an increase in the difference between the return of third bonds and German government bonds. Sooner or later it had to happen, in fact, immediately after the introduction of the tremendous financial incentives after the collapse of Lehman, many thoughtful observers, as well as some market participants realized that fiscal consolidation would eventually become a major problem. Unfortunately, it happened faster and earlier than many had hoped.

Igor Tringlers
2010-06-23 10:20, Economics.

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