Dr. Alexander Mirtchev considers that the choice between stimulus and austerity that remains an issue of contention after the Toronto G20 summit obscures the main issue of confidence in global demand in the mid-term.
Dr. Alexander Mirtchev, president of Krull Corp., stated in an interview with CNBC that the doom and gloom related to concerns over sovereign debt problems, U.S. "jobless" recovery and the spate of other "bad news," emerging on a daily basis, have created a diversion in policy approaches. One set of measures focuses on tackling the extensive deficits that are plaguing a number of economies, most prominently Greece, Portugal, Spain, Italy and others. The other set of measures is concentrated on ensuring that an early "withdrawal" of state intervention does not negatively affect the global recovery. The resulting "austerity vs. stimulus" debate that reached its zenith around the G20 summit in Toronto, exemplifies the perceived "strategic interests" and the intrinsic political considerations of countries that are proponents of the respective approaches.
In effect, Mirtchev reminds policy-makers that the current debate is a reflection of the different responses of governments to the crisis itself: while major economies with overblown financial sector rushed to rescue the banks and the capital markets, other countries had to rely on the "automatic stabilizers", i.e. the public money spent to support the welfare safety net and thus underpin consumer spending. Therefore the discussion about exit strategies needs to bridge the gap in understating of what it is that governments can actually exit: in the U.S. it means the withdrawal to safety nets under the capital markets, in Europe it means the contraction of the welfare state. Both sets of measures are important and both fail to point to any recovery strategy beyond the faith in the return to the status quo ante. The questions posed by the Chinese economic model and the expectation of continuing demand in Asia are the true context for the G20 discussions because they address the issue of future demand for goods and service produced in the deficit areas. According to Mirtchev, "At the end of the day, the exit strategy points to the goal that governments wish to achieve, and this would go further to increase market confidence than a number of other measures."
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