Euro Zone Budget Deficit Crisis – Spend or Cut ? 4



 

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!

VN:F [1.9.22_1171]
Rating: 5.0/5 (1 vote cast)
Euro Zone Budget Deficit Crisis - Spend or Cut ?, 5.0 out of 5 based on 1 rating
  • Thanks everyone for your vote on the previous poll. I already appreciate this added level of interaction with all of you. Go and vote in the new poll and stay tuned for the new opinion article based on your votes 🙂

  • I would also love to hear your comments regarding the solution to the Euro Zone budget deficit crisis !

  • If only were as simple as has been set out above. One of the issues that does appear to be emerging is where a currency should be a unit of value or a unit of exchange. Ben Bernanke is clearly of the view that it should be a unit of exchange and attributes the prolonged duration of the Great Depression to the policy of retaining the value of the Dollar. Hence he has been able to justify his current action of providing the Dollar solely as a unit of exchange by successive quantitative easing. The value of the Dollar has been significantly diluted. However America does seem to be pulling out of recession with a stream of consistently positive data. Personally I commend his actions and hope that history will judge him favorably. On the other hand the approach being taken by the European Central Bank is somewhat different. They are seeking to retain the Euro as a unit of value. This is particularly shown in the Long Term Refinancing Operation and the various bailout mechanisms. The defining distinction between the action of the ECB and the Federal Reserve is that the risk of failure of the European model lies with the participating banks and the American model lies with the Fed. If the American model succeeds, the Dollar will be forever diluted. If the European model succeeds, the Euro will have retained its value. The problem the risks of the European model failing are significantly higher than of the American model failing.

    • Good opinions. I agree that the Euro Zone has much more to lose if the model fails. Thanks!