Euro Zone: Debt Reduction Requires Cutting Spending
Press Release June 27, 2012
Gütersloh, Kiel. The countries in the euro zone that are suffering from a debt crisis need to make it their top priority to cut public spending. To prevent demand from dropping drastically as a result of cutting spending, they need to take economic measures to become more competitive internationally.
This is one of the main solutions presented in Global Economic Solutions 2011/12, which contains the solutions generated at the Global Economic Symposium (GES) in 2011.
The international group of experts and decision makers at the GES 2011, which included Turkish Minister of Finance Mehmet Şimşek, Stanford Professor Edward Lazear, Argentinean economist Pablo E Guidotti, and Boston Consulting Group CEO Hans-Paul Bürkner, provided support for the stance of the German government, which Chancellor Merkel and Federal Minister of Finance Schäuble will reiterate at the EU Commission Summit on June 28/29.
The renowned group of experts and decision makers at the GES stressed the importance of cutting spending for debt reduction. Empirical studies have shown that increasing taxes to reduce debt would impede economic growth much more than cutting spending would. Cutting spending would, however, depress domestic demand, and should therefore be supported by a growth policy that would make the indebted countries more competitive. Increasing the efficiency of national administrations, opening up government-regulated markets, implementing labor market reforms to provide better work incentives, and investing in education would be ways to stimulate long-term growth in the indebted euro zone countries. The group of experts and decision makers cautioned heavily against using the European Central Bank to stimulate demand in these countries, because it has to deal with the complete euro zone and thus cannot attempt to stimulate demand in particular, individual euro zone countries.
The Global Economic Symposium (GES) 2011 was jointly organized by the Kiel Institute for the World Economy (IfW) and the Bertelsmann Stiftung, in cooperation with the German National Library of Economics – Leibniz Information Centre for Economics (ZBW). The GES 2012 will be held on October 16–17 in Rio de Janeiro.
Further information can be found at http://www.global-economic-symposium.org and at the official GES-blog at blog.global-economic-symposium.org.