The two key issues which are keeping the world leaders on 'tender-hooks', are the European crisis and tensions with Iran over its nuclear programme. Even if one of these spirals out of control, the consequences for the entire global economy would be catastrophic, with even worse consequences for the states involved.
In Europe, some of the member nations are saddled with excess debts and are virtually on the verge of a default. The ‘standard medicine’ so prescribed for such ‘ailments’ include debt restructuring, which essentially entails writing -off apart of it, followed by austerity measures to bring about the much needed fiscal discipline. While prima facie, such a ‘medicine’ would have its own merits considering the background of the crisis, yet it could also lead to terrible ‘side- effects’, if administered the wrong way.
While learned economists and enlightened political leadership are likely to ‘prescribe other remedies’ as well to the ‘ailing countries’ of Europe, the basic objective of any policy prescription sought to be finally administered should be:
a) Ensure that the write-offs are fair, and do not cause unacceptable damage to the affected entities, while the balance restructuring of the debt is realistic, considering the overall long-term resilience of the economies in question,
b) Cut wasteful government expenditure, that is, such expenditure, which if eliminated completely or downsized significantly, would not disturb the social order too much, and/or adversely impact the overall productivity of the economy, and
c) Direct significant part of the bailout funds to facilitate better economies of scale for private enterprises to produce quality goods or services at highly competitive costs. This would eventually lead to increase in the employment generation, increase in the revenue for such governments through taxes, besides of course adding to the foreign exchange earnings for such economies as well.
Yes, in the short-run the ‘side- effects’ could include inflationary pressures due to increased spending without commensurate increase in the productive capacity of such economies, besides some other pains as well. But such ‘teething problems’ would surely pale into insignificance when compared with the likely catastrophes which could unfold, should there be in- orderly defaults by some of the key member nations of the European Union. Such a nightmarish scenario which is being avoided at all costs, going by the efforts of the European leaders.
Coming to Iran, it can score a diplomatic coup besides other gains as well, if it meets the concerns of the United Nations regarding its suspected nuclear programme, and as a quid pro quo, works out a ‘nuclear umbrella’ with Russia or any other permanent member of the UNSC with which it shares a comfortable relationship today. Such an ‘umbrella’, could guarantee security to Iran in event of any nuclear strike on its soil, or in case of any attack on its nuclear facilities.
Certainly, the essence of jasmine revolution besides its own current internal woes, should not be lost on the Iranian leadership, whose aggressive posturing on the Strait of Hormuz, smacks of a misplaced and ill–timed adventurism.
