Unless The EU Adopts A Growth Compact Soon, There Will Be Social, Political, And Economic Disaster

Thursday, May 3, 2012
By Paul Martin

Sony Kapoor, Re-Define

Unless the EU signs up to a Growth Compact soon, we face social, political and economic disaster. Swift action on tax, banking and investment is the way out of the crisis.

Overspending by governments, we have been told, triggered this crisis. Thus the cure lies in immediate austerity, hence the German-led push for a eurozone fiscal compact. But, as demonstrated by the experiences of Greece, Portugal, Spain and Italy & now the broader EU, this course leads to biting, deep recessions, rising unemployment and worsening public indebtedness. The IMF has acknowledged as much and the latest alarming data on rising unemployment in the EU is a case in point. A focus on growth, not austerity, is the correct answer for Europe’s ills.
The case for “growth-friendly austerity” relies on the argument that public cuts are compensated for by consumers and businesses spending more, and with greater efficiency. However, the collapse of confidence wherein everyone expects the economy to worsen before (if) it gets better, along with excessive levels of private indebtedness, means that consumers and firms are busy repaying debt or building rainy-day funds, not spending and investing. In terms of exports, what works for small open economies with flexible exchange rates will not work for the economic giants the EU and the Eurozone are, especially as the troubled economies of the Eurozone have fixed exchange with their largest trading partners.

The Rest…HERE

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