Introduction: The Global Economy’s Problem
The global recession began in 2008. Some analysts have labelled it a Great (or long) Recession, others a Lesser Depression. Europe has been hardest hit although the slow down has also been clearly felt in the U.S.
The global economy’s melt-down has meant that economies have experienced very weak economic growth. The consequence of this has been severely reduced tax receipts and therefore governments have not been able to fund public services and welfare. As their economies have regressed public spending as a proportion of GDP has automatically dramatically increased without any policy changes made by governments. This has meant that governments have felt forced to then cut public spending dramatically while also increasing taxation. The consequences of not doing this would be unsustainable borrowing in order to plug the gap between public spending and tax receipts.
The Global Economy’s Instability has resulted in Political Instability
The global recession has caused governments to change in several nations including Spain, France, Britain, and Greece. However, if we look closer at some of those nations we instantly see that it is no ordinary change in government. Greece is the hardest hit nation of all. It is unable to pay its debts and keeps needing further and further financial support (bail-outs) to function. But these bail-outs are conditional on further public spending cuts. Therefore Greece’s public spending cuts are more severe than other recession-hit nations. Riots months after month and year after year are hurting Greece. And its two main political parties now have similar levels of public support to that usually associated with minor parties. Meanwhile in France the Socialists are back in power with a promise to impose a top rate of tax of 75% in 2013. This is the highest rate of any major western nation.
While it is true that austerity is very much a response to this crisis… sluggish growth has also been met with calls to stimulate the economy. So for example, in the UK banks are being made to lend more to businesses simultaneous with public spending cuts to sort out the public finances.
Many differing factions in society have been blamed for the global economy’s crisis. Too much private and public borrowing, bankers, the rich. For example in the U.S. the Occupy Wall Street Movement clearly faults the rich and bankers for the crisis and this movement succeeded in spreading across the western world in 2011, although it is clearly less prominent in 2012.
The end to the recession is not yet in sight. In the UK (in 2012) the government and even the Labour Party opposition, are saying that more public spending cuts (and even more taxes) are needed even beyond the next election in 2014 or 15.
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