The financial crisis – newspapers, radios, and televisions talk about it every day. You hardly pay attention to it, yet it affects your daily life. The latest measures by the Belgian government to meet the targets for reducing public deficits on sovereign debts are a striking example.
Recession or economic recovery? It seems that we are currently at a turning point, and the situations differ both in Europe and the United States. Why? This is what we will briefly discuss for you today.
Recession hits Europe
The countries of the European Union are bogged down by unsustainable amounts of sovereign debt in the long term. Governments are now paying for the budgetary laxity that has taken hold over the years. In short, our states have been living on credit for years, but today their debt is such that no one wants to lend them money anymore, except at high rates.
To cure the patient, Europe has imposed on member states not to exceed an annual public deficit of more than 3% of GDP. To achieve this goal, governments must cut public spending but also increase their revenues. These are the famous austerity measures that are hitting everywhere in Europe.
The corollary of this fiscal purge is stagnant growth and a catastrophic recession. Is austerity a cure-all or a deadly poison?
Uncle Sam’s money printing factory
In the United States, things are never done the same way as elsewhere. While the US public deficit reaches 120% of GDP, nearly $16.5 trillion, Republicans do not want to cut public spending or increase taxes, total liberalism obliges. President Obama is doing what he can to convince the Senate, but tax increases are still seen as a scarecrow in the United States. As a result, when the US runs out of money, they print more to support economic activity.
This suicidal policy has the positive effect of maintaining economic activity, but it is not sustainable in the long term. The upcoming debates in the United States will focus on reducing the public deficit.
Current developments in Europe
The situation in Europe seems to be positive. Europe appears to have avoided the bankruptcy of several states, and austerity measures allow states to more or less meet European targets. However, this fiscal arsenal seriously threatens household consumption, and recession sets in with the additional danger of reducing tax revenues, the perfect counterproductive effect.
Current developments in the United States
The United States will not escape reducing its abysmal deficit. The upcoming debates will be stormy but vital to the survival of the world’s largest economy. Economic activity is therefore inexorably bound to slow down in the United States in the very short term.
