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| (Former) Greek PM Papandreou |
One of the things that makes the American common currency work across the country is we have a common fiscal authority and high migration... In Europe, there's no fiscal authority, migration is more difficult and most of the countries are not willing to let themselves become empty.One of the reasons why the European Union is not quite a "United States of Europe" is due to a lack of centralized monetary policy and labor mobility. This can lead to differences in interest and agreement that might weaken the Euro. This is one of the reasons why Europe has been so slow in dealing with the Greek crisis.
Over the longer term they're going to need European bonds and a number of other actions, and they have to recognise the framework of austerity is not the way to go.Now, this is interesting. Stiglitz is challenging the view of Greece's creditors that austerity--in other words, massive budget and public sector cuts--is the solution. Stiglitz felt the same way when it came to the Asian Financial crises, but his warnings were not heeded.
Why might Stiglitz buck the orthodox view, here? What might be the dangers of forcing Greece to radically scale back its public sector, including its very cushy welfare state?
I think that doing budgetary cuts, cuts and cuts is not the only solution to bring the financial house in order because doing too many budgetary cuts is hurtful for the economy. Public sector cuts must be constantly on sight to prevent wasteful spending but Greece leaders should be mindful that too many cuts can lead to a lack of international and domestic investment, massive unemployment, reduced economic activity and productivity and loss of revenue. The common wisdom of the orthodoxy leads to cutting necessary spending in the public sector to invest in essential social programs that assure the stability of the state. The workforce bust be healthy to have strong economic activity, thus generate abundant revenue. Spending is essential because is a long-term investment but usually leaders as in the case of Greece opt for harmful austerity measures to bring about an immediate solution to Greece's financial difficulties. Definitely austerity alone is not a wise stance to take to fix Greece financial crisis.
ReplyDeleteCarlos Moya
"too many cuts can lead to a lack of international and domestic investment, massive unemployment, reduced economic activity and productivity and loss of revenue."
ReplyDeleteExactly.