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Symposium 2011

Solution for Redesigning Fiscal Consolidation and Debt Management

The Challenge

The global financial crisis has dramatically worsened the state of public finances in the majority of developed economies. Many are on unsustainable fiscal trajectories and there is broad agreement h ...

The global financial crisis has dramatically worsened the state of public finances in the majority of developed economies. Many are on unsustainable fiscal trajectories and there is broad agreement hat very substantial consolidation efforts are needed to re-establish stability. But there is much debate about the extent and timing of the consolidation process.

Ideas from Students of the Humboldt Schule, Kiel

Proposals

  • A strict austerity policy is the most sensible and most sustainable way of dealing with high public indebtedness. Cutting public expenditure is the most effective way of implementing austerity measures.

Despite much criticism, austerity measures have in the past often proved to be a reliable way of stimulating an economy. In any case, they are much more reasonable than the alternatives of insolvency and inflation, which are less easily controlled and have far more severe effects on large numbers of people.

During times of political pressure, it is difficult to implement austerity measures because they need time to have perceptible effects. Nevertheless, time-consuming measures are much better than money-consuming measures.

  • The creation of a new independent institution charged with collecting and analyzing data (for example, data on external and internal debt) would vastly improve transparency, which would ultimately force ailing economies to take consolidation measures.

 

Ailing economies may have an interest in concealing their economic data to conceal their fragility. Having to publish economic data would put pressure on these economies to act, which would have a positive long-term effect. Continuing to conceal data would eventually lead to a crisis (as happened with the euro zone crisis), affecting not only the economy concerned but also all those that are in any way economically connected.

Even though the IMF and other institutions have tried to improve transparency, there is a need for a new independent institution.

    Related Solutions

    Solution
    Symposium 2011

    Radical fiscal consolidation should focus mainly on public spending cuts and also include steps to improve competitiveness.

    Radical fiscal consolidation should focus mainly on public spending cuts and also include steps to improve competitiveness.

    Radical fiscal consolidation should focus mainly on public spending cuts and also include steps to improve competitiveness.

    Polity
    Solution
    Symposium 2011

    Fiscal consolidation should take account of not just solvency but also liquidity considerations, such as the size of the yearly borrowing requirement.

    Fiscal consolidation should take account of not just solvency but also liquidity considerations, such as the size of the yearly borrowing requirement.

    Fiscal consolidation should take account of not just solvency but also liquidity considerations, such as the size of the yearly borrowing requirement.

    Polity, Civil Society