UN concerns about economy

UN warns that the economy is heading for disaster with the austerity policies

Governments stifle and destroy consumer expectations of the public sector and households, according to the UN Agency for Trade and Development.

"The situation is really critical," says UN expert.

The world may enter a period of "two lost decades."

The global economy is addressed to "mess" if governments insist on fiscal adjustment policies that are stifling consumption, destroying the expectations of public and household investment and paralyzing.

This is what the expert predicted on Tuesday the UN Agency for Trade and Development (UNCTAD), Heiner Flassbeck, who explained that "the situation is really critical," and that failure to act quickly the world will enter a period of " two lost decades, "the image of what happened in Japan, whose economy ranged between deflation and growth at zero in the nineties.

If you continue to cut public spending will end in a permanent recession "If governments stick to the fiscal adjustment policies continue to cut spending and end up in a permanent recession. That's quite inevitable because you can not create anything growing , "said Flassbeck , Director of Globalization and Development Strategies, UNCTAD.

In presenting the annual UNCTAD report, which examines the problems of economic policy after the crisis of 2008-2009, the analyst said the best example of what can happen in the world is what is happening today in Greece.

He considered that the only thing that can be anticipated in this country is " a deeper recession , "two years of starting to cut spending, raise taxes and cut the incomes of workers and retirees.

These adjustment measures were not accompanied by any kind of "positive reinforcement" for the economy, criticized Flassbeck, who asked "Where you can go an economy?".

In that vein, argued that if the rest of Europe mimics the action taken by Greece, " this is going to end in disaster "because" no recovery of wages and diminished expectations of the private sector and households no more instruments available to revive the economy. "

Pleasing markets

In this regard, the UNCTAD report notes that "the passage of the stimulus to fiscal adjustment is counterproductive , "especially for the industrialized economies, because by reducing the GDP and tax revenues" is detrimental to both the consolidation of public finances " as in a vicious circle.

He asserts also that "high public debt levels are a consequence of the crisis, not a cause" and that fiscal policy to stimulate the growth is more likely to reduce the deficit and curb borrowing.

Moreover, it stresses that it was the public bailout of banks and other financial institutions during the recent financial crisis that created "much of the deficit, and which involved the conversion of private debt into public debt."

Regrets that countries appear to have excessive confidence in the financial markets in percentages, this meant that the ratio of public debt to GDP in developed countries nearly doubled between 2007 and late 2010, to over 60 percent.

Followed a different path in developing countries as a whole suffered less from the crisis because, among other things, adopted fiscal policies , with their fiscal balances improved last year and the debt to GDP ratio was kept under control, the study.

In the report of UNCTAD, its director general, Supachai Panitchpakdi, lamented that the countries appear to have excessive confidence in financial markets and have adopted austerity measures in the hope " to please ".

However, the financial sector, once recovered, has preferred to recapitalize rather than increase the volume of loans to the private sector and households , which would have been good for the economy.