Austerity is not a valid option

The conclusion of the above article – according to which, whether in or out of the euro zone, the need to abandon a failed economic model could not be more pressing – has validity beyond the European continent. Next month, during the high-level segment of its New York substantive session, the United Nations Economic and Social Council will consider in depth a report about the world economic situation and prospects as of mid-2012.

In accordance with the findings of this document, global economic growth will likely remain tepid this year, with most regions expanding at a pace below their potential. Therefore, concerted policies should be enacted so the world economy can break out of the vicious cycle of de-leveraging, rising unemployment, fiscal austerity and financial-sector fragility.

On the fiscal front the present policies in developed economies, especially in Europe, are heading in the wrong direction, driving the economies further into crisis and increasing the risk of a renewed global downturn. The severe fiscal austerity programmes adopted in many countries carry the risk of creating a vicious downward spiral, with enormous economic and social costs. Indeed, lower spending in the vital sector of education dramatically undermines the quality of human capital, with unacceptable consequences for the future.

The global policy recommended in the UN report is logical and future-oriented. It is essential to avoid premature fiscal austerity and shift the focus from short-term consolidation to robust economic growth with medium- to long-run fiscal sustainability.

Ioan Voicu

Bangkok