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Imagine a group of people being stranded amidst deep amazon forests with nothing to eat except insects and lizards, with nothing to cover their heads, being tugged out into the wilderness of discomfort and agitation. After days of extensive and tireless operations, rescue officers ultimately landed with loads of food and all the amenities they can offer. But there was a tragic turnaround: rescue officers decided not to take the stranded people out of the claws of death; on the contrary, they agreed to continue their operations as long as they can.
This is what Greece is going through. Over the year of crisis, it has been observed that whatever the assistance mechanism (in terms of bailouts and loans) designed and amended so far contributed more towards fiscal chaos and debasement of the economy, affecting the lives of millions of people and its image as a whole.
Assistance extended so far allowed Greek government to spend, since the engine of the economy has bottomed-out and domestic resources dried away.
Bailouts and loans just sway a nation back and forth in ravines of debt and despair. Bailouts may help a worn-out engine run, but it can’t help reduce deficits. It is very uncommon to witness that after years of crisis, authorities failed to restructure deficits, failed to frame rules concerning public expenditure, failed to eradicate to fiscal illness, and failed to bridge the fiscal gap and move on.
For example, how far have measures taken to stabilize Argentina debt crisis been successful? Ten years after the Argentinean sovereign debt default, the world seems to have ignored or fizzle out lessens learned in South America. Even today, after a decade of financial fall-out, litigation are continuing; debtors are still hopeful that one day they might get their money back.
On the other hand, austerity measures help curtail expenditure. They assist in lowering the possibility of the further accumulation of debt, but in no sense do austerity measures help reduce previously accumulated debt. This is where action by the International Monetary Fund and European Central Bank turns folly.
A system has to be put in place that brings public expenditure under an axis of regulation, under the barricades of the financial capability of a nation to spend, rather than printing stacks of money to purchase government bonds. Institutions aiding financially are just acting like a cushion, instigating or backing-up nations to carry on reckless spending patterns no what matter whether they can withstand the debt burden or not!
Institutions that promote spending cuts followed by hybrid doses of bailouts partly shift responsibility back to themselves from a debt-laden nation, and continue the legacy of fiscal fallacy.
Legal framework on a systematic platform has to be implemented at a global level, so that in the future we live in a debt free world, a world where fiscal discipline matters and budget surpluses are a reality for all. At least in the case of Europe, a fiscal institution has to overlook the fiscal affairs of all the member nations, capping public spending based on the country’s own financial health and current debt.
The situation where Greece is currently dwelling is very close to people stranded in Amazon forest. What is needed is effective fiscal management. International institutions can play a much bigger role with technical guidance on budget management and by discounting policies that hardly bring any substantial change.
The need of the hour is to lift people away from the woods, not to let them survive being the weakest!