Euro Zone Budget Deficit Crisis – Spend or Cut ?


 

The polls have ended.

In our first ” Have Your Say ! ” poll, the majority of you felt that the solution to the Euro Zone budget deficit crisis is a cut in spending so as to reduce debts.

While there is definitely no perfect solution to this, i always wonder the viability of both solutions.

 

Spend

A number of economic experts believe that the opposite of the current efforts to cut expenditures should be the solution to this financial crisis. With a number of the Euro Zone countries in a recession, any cut is argued to be counter productive and deemed exacerbating to the current dire situation.

Spending on the economy would stimulate growth which in a feedback loop will drive more employment and tax revenue. An example would be the US with it’s quantitative easing policies and the apparent payoff seen in the improving employment market.

Having said so, the challenges are obvious. How do you spend when you are neck high in debts?

 

Cut

The main opinion of austerity cuts resonates with many. It is definitely the apparent solution in any financial crisis. I use to remember when i spend too much on candies in my youth and my parents would tell me ” stop spending “.

Germany strongly advocates this, together with most of the other Euro Zone members until the recent polls in France and Greece. Voters gave support to anti austerity factions, opening a new arena of political debate and cross fire.

One thing for sure, with austerity measures comes social problems. Strikes and protests cripple the already fragile economies. With spending cuts come reduced growth and employment. The unemployment crisis in Spain has escalated to a high of 24% unemployment rate with half of the young people out of a job.

Having said so, one cannot deny the obvious benefits with a lower debt profile as many of you have identified.

 

Opinion

I believe the unique characteristics of the Euro Zone calls for an unique solution.

  • Spending should be reviewed on a needs / wants basis. Anything not crucial to fundamental priorities should be reconsidered.
  • Cuts on fundamental priorities should be held off unless absolutely necessarily. Spending must continue but rather on critical sectors. Programs such as those to increase employment and fundamental growth must continue.
  • The entire Euro Zone must work together towards a common objective. The current bickering and flip flops staggers progress and ruins market sentiments. Support must be given for certain types of spending, namely the critical sectors as mentioned.

 

Thank you readers for your time and why not head out to vote for the new Have Your Say ! poll?

Is the US’s growth sustainable?

Since the end of the 2008 financials crisis, it’s recovery and growth had been spectacular to say the least. However is the entire economy on the same track?

 

Have your say at the home page!

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