A solution to the debt crisis of the Euro Zone

Karachi Fashion show
Fashion show (Photo credit: Wikipedia)

It is not easy to understand why a politician is unable to fix something broken. Perhaps, politicians only think in terms of getting power and not in terms of finding the correct solutions.

Using the reason, if we want to solve a problem, we should find the causes. Of course, this can be very difficult, but this is not an excuse for avoiding this mental process. All experts think that managing a crisis is simpler than managing a cash bonanza. The reason is that in a crisis there is a simple and identified objective, but in a bonanza it is more difficult to select the proper investments that could avoid the following crisis period because we can see the past but not the future and we do not know what the cause of the next crisis period will be. In fact, every crisis always was born under a bonanza period.

However, it seems that it is very difficult to solve the current crisis period. The main indicators could be:

– There are different viewpoints on the causes that imply different actions to solve the crisis, although we know that a crisis is a crisis and there are many things that any manager knows that they must be done to control the situation.

– There are many people trying to agree a solution, but if the problem is technical and not political this is only a wasted time. We can agree that tomorrow the sun will arise from the west, but scientists know that it is, if not absolutely impossible, extremely improbable.

In any crisis there is a gap between an offer and demand. For instance, in a debt crisis there is a gap between the money needed to run our tasks, and the money that we can get. The solution to the crisis is always to eliminate this gap. A crisis is the product of having an offer lower to the correspondent demand.

Technically speaking, if we are demanding something that we cannot get there is only a possible solution: To reduce our demand because we cannot modify the offer. In a debt crisis, austerity is the only reasonable solution. It can be possible that there is another way to the exit of the crisis but it does not depend on us.

At this point, we should think about the reasons because the recent efforts are not providing the solution that we need. I think that politicians have a bad concept of the austerity policies that are limiting the results of all their actions.

A lot of people think that austerity is equal to cost cuttings. This conception of the austerity is based on budget viewpoint that our politicians like very much because it does not need any knowledge about what they are managing, but austerity should be accomplished from an economic viewpoint understanding how all is working under those budgets. From an economic thinking, austerity means to reduce the gap between our demand and the offer we can access.

Austerity is not cost-cuttings; it is much more than this. Austerity policies should be based on structural reforms that simplify the working of the organization and not in direct budget cuts.

Imagine a communication company that cannot reduce its staff and it does not have money enough to finance its work, and then, management decides not paying the energy bill. Looking at the budget, crisis debt should be over. But in the next months there will be a lot of journalists sitting in their office but no papers on the street for preserving salary costs but ruining the company.

When austerity does not seem the solution to a debt crisis, we should search for the guilty in the people that confuse a reduced budget and a structural reform, as if they were confusing sewing with couture.

Searching for growth should be the main objective of an austerity policy too, as it is reducing the gap between needed and disposable money, but this must be done with intelligence and not through looking at the figures of the budget and shaking the dice.


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