Crisis - The Trawler.org
As the effects of the financial crisis linger, and European solvency and political stability come into increasing question, numerous columnists, pundits and wonks have offered up both diagnoses of the disease and remedies to promote global economic revitalization. Canadians are not immune to these discussions and prognostications. Recent articles by Heather Mallick of the Toronto Star and Andrew Coyne of the National Post provide a snapshot into the Canadian debate over the causes of the European crisis and the means for raising Europe, and the world, out of its troubles.
Mallick argues for a Keynesian approach to solving the crisis. To put it simply, Keynesians argue that the government should spend money during times of recession in order to increase demand and kick-start the economy. The government then taxes the resultant economic activity, making back the money it spent during the recession. For Keynsians theorists, such as Paul Krugman, it is essential that the state intercede in the economy to regulate the otherwise unfettered ambition of capital and to curb the fluctuations of the market.
Coyne, on the other hand, argues for monetarist, neoliberal solutions to the crisis. He believes the euro crisis is a result of inadequate economic institutions at a Europe-wide level, which allowed some countries to use the stability of the euro to borrow beyond their means. The 2008 financial crisis exposed these underlying structural problems in the European monetary system, which led to the collapse of the enormous debt bubble. Coyne dismisses Keynesian approaches to solving the European crisis, and argues instead for “finding and removing the barriers, regulatory or other, that prevent markets from allocating productive resources efficiently, with a view to expanding capacity.”
For Coyne, reducing regulations is central to solving the crisis, for Mallick, this is the cause. Mallick thinks that increasing government debt to promote growth will help address our collective problem, while Coyne believes this amounts to throwing good money after bad. Both are quick to dismiss the opposing view.
Neoliberal economics became orthodoxy in the 1980s following the perceived failure of Keynesianism in the 1970s. Now, thirty years later, neoliberalism is coming under attack for its role in potentially causing the present crisis. Both the cause of and solution to our current troubles are likely to remain hotly debated topics among opinion makers here in Canada and abroad for the foreseeable future.
The crisis in Europe is a worldwide concern, and this week Mauricio Vargas, in his column in El Tiempo, wonders whether Colombia can survive the crisis or not. He points out that Barack Obama knows that if Europe succumbs to the crisis, then many banks in the US will do so as well, and in that scenario Obama will lose the upcoming presidential elections.
Moreover, China and India, who were once the motor for emerging countries such as Colombia, have stopped their growth. China’s economy will grow only by 7.5% this year compared to the 10% in previous years. Latin America will grow 3.5% this year in the best case scenario. Vargas states that so far Colombia is fine, but there are symptoms that point to a slowing down of the economy: the prices of exports such as coffee, petroleum and coal are going down, while industry and commerce are still growing but only slowly.
The government of Juan Manuel Santos must be careful with expenses, but it also has to accelerate public investment which generates employment. There is a new Minister of Transport, and apparently he is a good one according to Vargas. It is yet to be seen if he can prop up the public investment enough for Columbia to survive the world crisis. If that doesn’t happen, Santos will worry for his re-election, which will depend on the economy, as is the case for Obama’s re-election. (link to article)
Adriana Cerretelli, columnist for “Il Sole 24 Ore”, writes in her April 19 article about the financial troubles that Italy and Europe are still facing. The last few days were very negative for the “spread” performances and real estates activities in Euro-zone are losing this year 7.1% of their value (17,1% only in Germany). According to Cerretelli, in this particular scenario the presidential election in France will hold the balance of power for Euro’s destiny.