Tuesday, July 27, 2010

The World looks for Economic Answers

By Kevin J. Price

Recently the major economic powers of the world got together to “solve” our problems and it becomes center stage for protest. The unfortunate city this year was Huntsville, Ontario (Near Toronto, Canada). Most of the protests are in opposition to the blatant capitalism that the participating countries are "guilty of," according to organizers. What "capitalism" they are talking about these days, it is hard to say as these countries reconsider the austerity measures that are the only means many of these nations have to save themselves, according to Ann Mettler of the Lisbon Council.

While the Obama Administration continues to argue for more spending to solve our economic problems, Europe is wisely taking a different approach. It is obviously best to make reforms when economies are stronger and are more able to better sustain cuts to services in programs. Unfortunately, European countries cannot afford such a luxury, according to Mettler. For example, France has not enjoyed a balanced budget in almost 4 decades and this includes many years of economic growth, which could have made cutting spending less painful. Meanwhile, members of the European Union have been accumulating debts at a break neck pace and governments are saddling themselves with increased obligations, particularly for pensions, and without any plan for paying for them in the future. Furthermore, these governments have long taken a chapter out of America's book of pursuing social welfare at the expect of what is in the best interest of the economy as a whole. They simply pass the burden on to future generation and future elected officials.

The "writing has been on the wall" for these countries for quite some time. Standard & Poor's predicted back in 2006 that by 2050, the debt burdens in Italy and France would be well above 200 percent of gross domestic product (GDP), and about twice as high in Portugal and Greece. It was also predicted four years ago that the aging European demographic would create serious problems for the "next decade." Well the next decade has arrived and there is no plan or strategy poised to address the problem.

So the people of Europe -- particularly the hard hit country of Greece -- are complaining about the severe "austerity measures" designed to get spending under control. For most of these countries, such is the only serious attempt to look at the financial numbers in decades and is well over due. Mettler argues that the Union has faced a three headed dragon for years: excessive pressure on public spending, an aging population, and a shrinking share in the world economy. These realities require these countries to make decisions that, just a few years ago, seemed unimaginable. Unfortunately, the US is right around the corner from having to make similar choices.

Kevin Price
Host, Price of Business, M-F at 11 am on CBS Radio News
Frequently found on Strategy Room at FoxNews.com
Syndicated columnist whose articles appear on a variety of media outlets.
His http://BizPlusBlog.com/ is ranked in the top 1 percent of all blogs by Technorati.
Kevin Price's Profile: http://www.google.com/profiles/PriceofBusiness

No comments: