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If the rich choose austerity…

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For the global economy to mend, the leading economies must make the right policy choices and work concertedly. The key policy debate has been on whether to go back to the expansionary policies that had helped to ward off the worst symptoms of the crisis or...
 
 
 
 
 
 
 
 


Prognosis for the global economy in 2012 remains bleak notwithstanding some improvement in the United States. Recently, IMF chief Christine Laggard reiterated that the world economy is in a dangerous situation. It is doubtful that the accord the European Union leaders struck at the December 9 summit for deeper economic cooperation in the euro zone will stem the debt crisis that began in Greece in 2009 and now threatens to engulf even France and Germany. In the U.S., there are signs of recovery across a number of parameters. Retail sales have been strong; spending on discretionary items has picked up; and the unemployment rate has dropped to 8.6 per cent. But then, there are also worrying factors. The housing sector, from where the global economic crisis originated, remains in a moribund state.
 
The unseemly political divide between Democrats and Republicans has stalled the progress of important enactments and the budget. Even the employment figures do not look that good, if the 300,000 people who have opted out of the workforce are taken into account. Emerging economies — India and China, among others — who were the growth engines for the world economy are slowing down. As a recent UNCTAD report points out, the developing world is both unable and unwilling to accept the role of debtor of last resort.
 
For the global economy to mend, the leading economies must make the right policy choices and work concertedly. The key policy debate has been on whether to go back to the expansionary policies that had helped to ward off the worst symptoms of the crisis or to opt for the now-fashionable economic austerity. During 2011, most advanced economies changed course and opted for fiscal restraint which they hoped would improve the private sector's confidence and set off a wave of private investment and consumption demand.
 
But new data from some important countries that took this route point unambiguously to a recession in 2012. Private sector confidence is touching new lows, as demand from the government and from public sector is sliding relentlessly. UNCTAD argues that, in the prevailing environment, fiscal austerity will make matters worse, not better, in the advanced economies. For most of them, high unemployment is a more pressing problem than fiscal imbalance.
Hindu News 

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