Fear of squeezing
Share
I have long argued that western politicians are far too preoccupied with cutting public spending. But given that this is their obsession it is remarkable how reluctant they are to squeeze the economy.
In Britain Labour is the main culprit with its fear of talking about austerity even though it clearly plans to implement cuts in the years ahead. David Cameron has also backed away from his earlier tough stance by saying there will be no “swingeing” cuts to existing programmes by a Conservative government.
“Nor can this reluctance to make cuts be explained solely by the impending election”
The idea that it is necessary to find the right time to exit monetary expansion and a loose fiscal policy is an excuse. Politicians are loath to spell out what their cuts will mean in the years ahead.
Nor can this reluctance to make cuts be explained solely by the impending election. The Greek financial crisis is only an extreme form of a fiscal challenge facing the whole of Europe. Its government wants to make cuts but fears the consequences of doing so. (article continues below)
At some point a financial crisis could well force the politicians’ hands and precipitate cuts. But prevaricating politicians, rather than the financial markets, will bear a large share of responsibility for the turmoil.
