Financial Times
September 5, 2011
In recent weeks, debt markets have undergone wild gyrations, leading some analysts and commentators to question the progress achieved in taming the sovereign debt crisis in the eurozone. More recently, economic data and forward-looking indicators have emerged that many economists think point to a faltering of the global recovery, compounding the general anxiety.
Instead of focusing minds, however, these developments have prompted a cacophony of prescriptions about what western governments should do next. There have been calls on regulators to rein in speculators, on the central banks to loosen monetary policy further, on the US and Germany to use their supposed “fiscal space” to encourage demand and on European Union leaders to take an immediate leap into a fiscal union and joint liability. Now more than ever is a time for clear messages and clear priorities.
Whatever role the markets may have played in catalysing the sovereign debt crisis in the eurozone, it is an undisputable fact that excessive state spending has led to unsustainable levels of debt and deficits that now threaten our economic welfare. Piling on more debt now will stunt rather than stimulate growth in the long run. Governments in and beyond the eurozone need not just to commit to fiscal consolidation and improved competitiveness – they need to start delivering on these now.
The recipe is as simple as it is hard to implement in practice: western democracies and other countries faced with high levels of debt and deficits need to cut expenditures, increase revenues and remove the structural hindrances in their economies, however politically painful. Some progress has already been achieved in this respect, but more needs to be done. Only this course of action can lead to sustainable growth as opposed to short-term volatile bursts or long-term economic decline.
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