Take a step back | David Taylor | Finance News Network

Take a step back

by David Taylor

Last weekend saw Spain elect a new prime minister. His name is Mariano Rajoy and he leads the country's People's Party - think Australia's Liberal Party. The country is in a state of economic distress and the people have voted for change. The problem, however, like many of the other 'fix-all' developments over the past 12 months, is that very little change or progress is expected to be made as a result of this latest governmental transition.

We have now seen leadership changes in Portugal, Ireland, Italy, Greece and Spain. All of these countries are facing serious structural economic problems - problems that cannot be fixed by political regime changes. Especially when there is now very little to separate the left from the right side of politics in Europe!

You get the sense that Europeans (by voting political leaders out of office) are doing little more than simply venting their frustrations over the lack of progress that's been made in solving the debt crisis. In fact there has been so little progress, Oliver Marc Hartwich from the Centre for Independent Studies, says the present situation is unsustainable and the region is bound to implode.

Meanwhile, over in the United States, a US bipartisan political "super committee" is racing against the clock to develop a blueprint for tackling the US debt debacle. Again, both sides of Congress are at loggerheads to work out whether to pursue spending cuts or tax increases, or both! The deadline for some sort of resolution is Wednesday. It's also interesting that while the focus has shifted back onto Europe, the US debt debt ceiling issue has simply moved into the background. I guess a good question to ask is which situation is worse?

You have to keep returning to the fundamentals. That is, asset bubbles, overspending and poorly run economies have left us with a gigantic economic mess spread across several continents. Not only are there going to be compromises made and spending cuts to deal with, but the duration of any resulting downturn is likely to be deeper and longer than anyone is currently prepared to accept. Until then, we are likely to see more and more short-term fixes and short-sighted policy development as governments and policy makers avoid making the uncomfortable decisions.

David Taylor

Disclaimer

The content in my blog is non advisory, please do not interpret this as advice in any way shape or form. These are just my thoughts and nothing I say should be acted upon.