The European economic crisis is likely to drag the rest of the world economy with it, on the way to another 1930s style depression, if allowed to continue unchallenged. The austerity measures being applied across Europe is reducing economic growth rather than stimulating it. Mr Cameron, the UK Prime Minister, is deluded in thinking that austerity stimulates growth. Ms Merkel, the German Chancellor, on the other hand, is only protecting the German economy but the Germans are paying a heavy price for it even though it is not reflecting in their economy at present.
If the present austerity measures along with protecting the Euro continues, growth is Greece, Spain, Portugal, Italy and the Republic of Ireland will continue to falter with continued demands to be bailed out by the rest of the Eurozone. The bulk of this bailing out will come from the Central European Bank supported by Germany and France in the main. The disastrous consequence will first be felt in France followed by Germany and their economy will join the downward trend. This will quickly spread to China, India and the USA and the rest of the world will follow in turn.
President Obama is the only world leader who has shown the recognition that the austerity measures are having a negative effect on the economy. On his own however, he cannot make a big difference. The US economy will grow up to a certain extent but when the rest of it trade partners cannot trade with it because of the austerity measures, its Growth will hit the buffers. The same thing will happen in Germany and France because, although they have the infrastructure to manufacture goods, no one will be able to afford to buy these goods. When this happens they will have to cut back and their growth will also hit the buffers. China, India and the rest of the world will be dragged with Europe and the USA.
The Greek elections due in a week or so may change what happens in Europe if the anti austerity party wins and does what is preaches. Changes in Europe, if that happens, will hasten the turmoil and how we come out of it will depend on political leadership. Is Ms Merkel likely to change her policies to fit in with the anti austerity measures? Mr Cameron is only a side player and up to now he has not shown any understanding of this crisis. Mr Holland has not shown his colours. Who is going to take the lead, take the bull by the horn, and steer away from austerity and towards growth. Who is learning from the USA and the Obama government handling of the economy?
The politicians and some economists say we can't spend our way out of the recession. If we can't spend, who will buy the goods and services that industry delivers? What happens then; industrial slowdown and eventually meltdown. The result bust not boom. No tax receipts, no revenue and more state support and benefit. Where will the funds come from? It does not take a genius to figure out what happens next; and all our politicians are supposed to be well educated. In Britain, the Majority of our Cabinet Ministers are Oxford graduates (maybe there lies the problem).
It can be done. It will need strong leadership and it calls for unity and not putting ones own country first. A level playing field is required for the whole of Europe. Convergence instead of divergence is called for. The richer European countries will have to be charitable in helping their poorer neighbours and they will all have to adopt an anti austerity policy and the state will have to take the lead. Private enterprise do not share the values that is likely to promote national, continental and global growth.
Good Luck and Good Bye until the next time.
Knight Owl
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