Are austerity measures crisis?

the right response to the debt

Theodoros Pitikaris BAB,BSc,MSc

Olli Rehn, Angela Merkel and other European leaders are calling for more strict austerity measures , as a good response to the Global Debt Crisis . But is this the right Answer? Firstly is essential to spot the roots of the problem, why we face this problem? The answer is not simple but financial analysts believe that there is productivity deficit in Western World cooperated to BRIC. What is really happened is that BRIC and Germany produce and the rest of the world is the consumer of these products. Easily we can justify that opinion, by looking the trade deficit of USA and South Europe. This production deficit was covered using borrowing. But actually there is a point that after the borrowing is devastating for the economy. The governments believed that they can slow down the process and reverse the production deficit by reducing the Government spends and squeeze the labor cost. This medicine is the safest way for a deep global depression. Who will consume the production if the most of Europe is under IMF austerity measures? BRIC countries are a hope for recovering in sector of services for Europe, but until know we have seen little thing to happened towards that direction (mostly in tourism, and financial sectors). Europe has the power to overcome the crisis, by using expanding (Keynes) policies, concentrated in sectors where there are competitive advantages. Research and innovation, education, tourism are key areas. Is necessary to differentiate our production model, and recover international trade balance. I am against the rules that give too much power to the state, but antidumping are essential while china and Asia countries keep technically lower exchange rates. This may because to some Big Companies a loss on their profits and it will delay the expansion of Globalization, still it will provide the time and chances for production recovery in E.U.

Austerity is just reducing the size of the economy leading Europe in deep depression. We have a common currency and a very tight monetary policy. In order to fight in a war we need all the appropriate weapons such as : Empower internal demand Freedom in education and free University Education Lower vat and other indirect taxations that increase prices cause inflation Increase Minimum salaries Enhance Research Solve the debt crisis via Eurobond or bad bank Loose the monetary policy Institute a mechanism that will provide European government with cash liquidity, until markets fully recover from the international crisis (Lemarhar domino-house bubble boom). A mechanism that will stay away from ESFM and EMS rules and beyond market, that will finance development actions using a logical interest rates Innovation Emboldening the inter-cooperation between Venture Capitals and people with Special ideas High taxation, in import products, from countries that keep technically low salaries and exchange rates Impose Tobin like taxation Institute European credit rating Agency A common ministry for Economics and Finance to coordinate national policy and improve the answer speed to market challenges Impulse anti-dumping policies against countries that keep technically undervalue their currency and labor cost.

Last but not least is important the politicians to provide citizens, unemployment persons and students with the hope that EU is able to handle the crisis, euro will stay still, and prosperity will return.