Sunday 27 May 2018

Austerity drive 'hurting Europe growth'

Manama, January 12, 2012

Policies being followed by the International Monetary Fund and Western governments to deal with the global economic crisis are making things worse, said a top official of the United Nations Conference on Trade and Development (UNCTAD).

UNCTAD globalisation and development strategies division director Heiner Flassbeck told delegates at an UNCTAD conference yesterday (January 11) in Bahrain that by adopting policies of practically zero interest rates along with austerity measures could see the West entering a period of non-growth for years just as austerity in Japan had resulted in no growth for two decades.

"The current crisis was not caused by fiscal imbalances or monetary policy," he said. "It was caused by the deregulation of the markets. That created the financial bubble to build up and then burst.”

He warned that if the West, in particular Europe, continued with policies of austerity, the current crisis would be worse than that of 2008.

"In 2008, there was available a quick policy reaction by governments putting money into the economy and effectively transferring private debt to public debt," he said.

"That is no longer an option in the current crisis. In Europe, we are seeing austerity measures that are cutting public spending and salaries and that leads to decreased expectations for both people and businesses.

"That means that individuals, households, companies and governments are trying to de-leverage so no one is spending and that will result in no growth at a time when Europe is going into a recession and the US has very weak growth.

"In Western economies, about 80 per cent of GDP is consumed. If we do not encourage consumption but instead adopt policies that decrease expectations, there will be no growth," he said.

"You cannot have the major Western economies, which still represent 75pc of global production, achieving growth through exports. At this level, China can't help," he added.

He said what was necessary now was to stimulate the economy and encourage spending to achieve growth. "With the current policies, we are on the brink where we could see the world economy collapse," he added.

"European leaders are fighting the wrong battles. The real problem in the Europe is a lack of competitive convergence in states.

"German spending has been flat for about 15 years, while peripheral counties have been borrowing and spending. There is no point in Germany continuing to save rather than spend because there is no one who can afford to borrow," he added.

Flassbeck said that one solution could be for Germany to change its economic policy and increase salaries.

Higher German salaries, he said, would stimulate spending in the home market and the rest of Europe. – TradeArabia News Service

Tags: Bahrain | International Monetary Fund | Europe | Conference | UNCTAD |

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