Monday, December 6, 2010

Why Large European Countries Need to Encourage Growth

This article was written by the Chancellor of the Exchequer in Britain from 2007-2010. He is worried that the response to the current crisis in Europe has been piecemeal and that the crisis is not going away. He states that this will affect the UK and the US.

One of his concerns is that distressed nations are being forced to cut government spending and to increase taxes as condition for aid. This will deflate their economies and make it more difficult for them to service their debt burden. He believes that they need to grow their economies in order to attract investors. Since internal spending has fallen they must be able to export their way out of trouble. This implies that the larger European countries must expand in order to support imports from their trading partners. This is the opposite of what they are doing. The large countries have also implemented austerity programs in order to deal with budget imbalances. The prospect for growth in Europe is dim if the larger countries continue with their austerity programs. Austerity may a good thing under some situations. But a Europe wide focus on austerity is a doomsday scenario.

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