2012.02.02. Austerity against Europe
"By Javier Solana / El Pais (Madrid). It is increasingly obvious to everyone that the economic collapse that began in late 2008 economic collapse is not any. Nearly four years after the beginning of the crisis, developed economies have not yet managed to start a sustainable recovery and even countries that are better off showing clear signs of weakness.
Not only is the fact that Europe is at risk of prolonged economic damage, but the highest long-term unemployment and popular unrest threatens to permanently undermine the cohesion of its social fabric. And on the political front, there is the very real risk that citizens no longer trust institutions, both national and European, and be tempted by populist appeals, as in other earlier times.
Europe must avoid such a possibility as is. Economic growth should be the top priority, because growth is the only thing you can do to get people back into jobs and Europe to pay its debts.
Obviously, there is an open debate on the best way to achieve recovery. The advocates of austerity argue that the debt has a negative impact on growth, while supporters of increasing the stimulus respond that is the low growth that generates the public debt, not vice versa, and that the austerity measures in periods of recession, only serve to make things worse.
Now, it is necessary that the Europeans agree on everything to find a way on which it is possible to reach a consensus. We can disagree about the long-term effects of injections of liquidity, but we can all agree that it is okay to let a profitable companies fall into bankruptcy because debt markets are not working. We need not agree on fiscal policy to understand that it is wiser to encourage investment to see how languishes our production structure. And we all know that it is more profitable to invest in re-educating the unemployed who allow long-term unemployment.
In any case, doubts about the negative impact of the austerity measures are becoming impossible to ignore.History teaches us that in times of deep recession, is more dangerous to remove the economic stimulus too early to wait until it's too late. A cut excessive spending in the current circumstances can lead us in a contraction in growth, which is already occurring: the International Monetary Fund forecasts that the eurozone will contract by 0.5 percent in 2012. Structural reforms are important to ensure sustainable growth in the future, but do not generate short-term growth, which is what Europe needs. Rather, in exchange for meeting certain minimum progress in reducing debt, Europe is in danger of causing long-term damage to their growth potential.
Compared to what is a new recession, the long-term cost of the stimulus policies is negligible. In many countries, current budget deficits are therefore not reckless that some governments have spent too much, but the temporary measures taken to address the crisis. Since interest rates are already low and the private sector is deleveraging, there is little risk that there expansionary policies causing inflation or end up eliminating private investment. By contrast, reductions in spending can reduce economic activity and, instead of reducing the burden of public debt, increase it.
Moreover, there is no reason to demonize public debt. From the economic standpoint, it makes sense that states share the cost of public investment and infrastructure projects and services to future generations, which will also benefit from them. However, it is alarming to note that today are being used in defense of austerity at all costs, the same arguments that became the 1929 financial crisis in the Great Depression. We can not let history repeat itself. Political leaders must take the initiative to avoid a social crisis caused by economic reasons. It is urgently necessary to undertake two performances.
Worldwide, more work is needed to address macroeconomic imbalances and create demand in surplus countries, including some developed economies such as Germany. Within the eurozone, it is necessary structural reforms and a more efficient public spending, which are key to retrieve a long-term growth and sustainable debt levels is what we need a grand bargain that would require countries that lack political credibility to undertake structural reforms.
The world is facing unprecedented challenges. Never before in recent history, had coincided with a recession so immense geopolitical changes like these. The temptation to defend first and foremost about national priorities wrong could lead to widespread disaster.
The austerity at all costs is the wrong strategy, and will not help. We can not let a misguided idea of "discipline" cause permanent damage to our economies and charge a terrible human price in our societies. All Europe must agree on a strategy of short-term growth and implement it as soon as possible."
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