The way out of an economic downturn is to spend and invest but instead what we are seeing at the moment are governments that think we should cut back and introduce austerity, said a leading Harvard professor.

"But historically that has never worked. We do not appear to be able to learn from history," added Harvard University visiting professor Dr Sudhakar Raju. “In economics history seems to just repeat itself and we fail to learn the lessons of past mistakes.”

Dr Raju was speaking to a meeting of more than 300 members of the Bahrain Chapter of the Institute of Chartered Accountants of India (BCICAI) at the Crowne Plaza hotel.

The event was organised by BCICAI in collaboration with the Centre for Banking at the Bahrain Institute of Banking and Finance and Sage Software Middle East.

"Science can plot the motion of the stars but economics cannot follow the madness of men," Dr Raju said. "History repeats itself and we do not seem to learn from this.”

Speaking on the theme of the financial crisis, the euro crisis and Basel III, he said what was now happening in Greece was much the same as what happened in Argentina between 1990 and 1992.

"In the Argentinian case, they were able to de-peg the peso from the US dollar but it still resulted in a currency collapse and banking crisis," he said. "As a member of the euro zone, Greece cannot devalue its currency but still faces much the same problems as Argentina did 20 years ago. Greece clearly has a serious problem but Argentina managed to get out of the hole in about two years.”

"The problem here is not so much one about Greece as one about the global economy. Even before derivatives, financial booms and busts have occurred in almost every economy. The problem we face is that this financial crisis covers every Western economy.

"We have a position where the birth rate is falling and the number of older people is increasing and that is creating a problem both in terms of healthcare and pensions provision and those are not problems you can address through austerity. You have to create growth," he added.

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