Tuesday, June 28, 2005

Deficits and politics

According to a report in the Financial Times today the Bank for International Settlements has warned that “Growing domestic and international debt has created the conditions for global economic and financial crises”.

However, the bank has acknowledged that, “monetary tightening would conflict with the desire to keep unemployment low and avoid deflation.” And, furthermore, doubts “politicians or central bankers had the will to implement the necessary policies.”

To quote from the Bank's report as per the FT article -

“If what needs to be done to resolve external imbalances is reasonably clear, it also seems clear that much of it is simply not going to happen in the near term,” the report said.
Quotes from FT @ BIS warns on domestic & international debt

This is more or less the situation in the Eurozone. Everyone knows what needs to be done in terms of economics to promote growth, and there is no shortage of armchair pundits giving their variation on the theme. Yet it remains the case that the political requirements of electoral cycles, and the need for politicians to be "popular" are the real stumbling blocks to solving the problem – one of the drawbacks of democracy perhaps, ..... that and the fact that power is still, thankfully, not sufficiently centralised in organisations such as the European Union.