Maybe Europe should listen more to Latin America- especially if this World Cup is anything to go by. Argentina and Brazil have both voiced their concerns over the savage cutting that is taking place in the Europe, as have USA. Whilst the sceptics have agreed to cut their deficit in half by 2013, Obama still looked uneasy at the prospect of misguided cutting. It is rather ironic that a country based on free market principles is more adverse to pulling out fiscal stimulus before economic growth is obtained, than countries who arguably have more social democratic principles undermining their traditional political outlook.
Whilst claims that other issues such as the environment and banking reform were ignored at the priority of ‘sorting out’ the budget deficit – campaigners and opponents are right to point out that these are just as important and are also intertwined with respective relevance to the economic situation. The missed opportunities of the coalition are an international phenomena, as the economic crisis has provided us a real chance to radically reform our economies to enhance future sustainability. Green growth and environmental reform should be central to the economic strategy, as should measures such as a Robin Hood Tax – which the G20 ruled out; the capitalist ethos of the G20 is largely to blame.
An important aspect however, of the G20 – is as in other meetings between these countries, the discussions aren’t exactly binding. There is still scope for countries to go their own way – and this might be exactly what USA, Brazil and Argentina do, hopefully. However, the bulk of the countries look set on eradicating their deficit as quickly as possible. However, as a liberal economist in the USA, Paul Krugman, says – we should be focusing on the dangers of unemployment and pulling away valuable fiscal measures.
Whilst many have been talking about the threat of inflation, which I have commented on in previous posts, there is also the threat of deflation. There is going to be a rather contradictory possible situation, where interest rates may be increased – especially when the central bank of the central banks, Bank for International Settlements, is arguing for interest rates to go up. As this is used to combat inflation and any increase in inflation is set to be mainly artificial (e.g VAT increase), the increased cutting of jobs resulting in high levels of unemployment will see people becoming less able to afford the increasing prices and therefore, deflation will be on the cards.
The national and international situation looks rather bleak. Hopefully we may see rationality prevail, but the capitalist ethos of the ‘need’ to cut now to scribble away digits from the deficit looks too strong, and dangerous.