Camp David meeting among G8 leaders came to an end without visible achievements over issues they discussed. However, President Barack Obama after the end of meeting voiced out that leaders of eight strong countries agreed on how to deal with current global economic mayhem, particularly, the Euro economies, all putting the job creation and economics at the top of their agenda, but Angela Markel clearly said that Euro members had to stick to austerity measures as the only solution to bring down their budget deficits in order to get rid of sovereign debt.
Indubitably, one of the critical challenges ahead of global economic recovery is sovereign debt that during good times many nations borrowed from the market or pumped in after the start of financial crisis. Since the very start of crisis, experts and politicians were sharply divided on 'how to deal' with the problem. On the one hand, many have maintained that accumulation of sovereign debt may not pose severe danger and government should spend largely in order to pull the economy back on the track. On the other hand, many recognize curbing the public expenditure through austerity measures the best way for economic restoration.
All countries have applied austerity measures to some extent. But the measures differ to severity and broadness. In some countries, economic austerities are introduced in particular sectors but are light enough not to fuel general opposition or civil uprising. While in some the measures were harsh and tough that people could not accept, and have stood against. See, for example, Spain, Portugal, Greece and etc. where protestors continually march into the streets with posters and placards in hands, expressing their stance towards austerity measures.
The series of protests have already cost too much. In Greece, the austerity opposed Syriza party became the second big political party which used to constantly be pushed into margin by New Democracy and Socialist competitors. The political parties are divided on how to approach with planned austerity measures by IMF/EU countries as part of condition for releasing bailout money which the nation is in due need of. It is widely believed that Socialist and New Democracy which were dominant parties were punished for what Greeks call blind following of EU and IMF.
What the people ask is employment which has fallen sharply in the market since the country was hit by global financial crisis during past years. Previously, the leaders of the three parties in previous coalition government signed off on new tough austerity measures, including a controversial reduction in the minimum wage, in exchange for about $171 billion loans from the Euro members and international financial institutions. They promised to realize austerity measures because there were no alternatives. With the commitment, Greece could face a systematic default.
Austerity measure is supposed to bring down debt level in troubled economies into a convenient level, but it has worked in reverse. The debt level has not come down rather increased due to protests and demonstrations some which cost governments millions of dollars. In addition, austerity weakened the consuming capacity and rising taxes have led to forced lay-offs which have brought about high unemployment rate. After receiving bailout money, the private creditors too followed the step and exchanged their holdings of government bonds. Though Athen officials made quite interesting and promising picture about the economic prospective, many still maintain it is too early to celebrate the deaths of global economic slump.
So, years of continuous economic slumps motivated many to claim for fundamental change or even the end of current economic system. Presently, there are deeper questions about the ruling economic system: whether the system is sustainable and working out with small technical fixation? There are leftists gaggling nowadays more than ever while hearing voices calling for economic regulation and restraining the presently unbridled capitalism which has led to growing gap and creating economic classes.
Though economic classes have been always there in the history with shadowy borderline, the situation is getting severe and serious as the gap has become so wide that no kind of political measure has been held yet that can bridge it. So, there are needs of much bolder and fundamental steps to solve the challenge. What kind of the measures must be held?
No doubt, 2008 financial crisis was not the only recession; however, it was the biggest. But all economic crisis and stagnation were ultimately ended by governments' interventions during past decades.
But it is the first time, after the biggest economic crisis of 1930's, that governments' interventions have been unable to solve the problem and bring the confidence back to global markets entirely. Instead, this time a new scenario came to dominate the market. That was exactly when governments started injecting cash into the global markets to restore their confidence. Before the eruption of the crisis and collapse of the global market, many countries around the world without considering the consequences were running on visible budget deficits and sovereign, domestic as well as foreign debts.
With the eruption of recession, on one hand, the government revenue started moving down equally with the decline of markets. On other hand, many governments in order to bring the confidence back to market unwillingly started bailing out financial institutions and corps' runs.
The measure set public budget on edge of precipice and pushed governments further into huge debts that many are unable to escape the possible defaults. Thus, the prospective of an economic chaos is booming. And there are voices heard about a global cooperation and collaboration to deal with challenges jointly otherwise the global recession would wash away countries one by one. Though often there are statements for system change, but decision makers understand there is no alternative to replace. So, perhaps it is widely maintained that though austerity measure is hard, it is not fatal.