An economic contraction far more serious than the one witnessed between 2007 and 2009 is looming on the horizon. Problems with excessive private debt are just one aspect we will have to address, because the public, i.e. taxpaying citizens, will also be affected.
The peripheral debt crisis has been analyzed to a pulp. The arsenal of fiscal and monetary policy measures has been exhausted. From 2007 to 2009, governments acted quickly and with traditional tools for combating economic crises, though they are falter now and fishing in the dark.
Partly because facing the possibility of another collapse, policymakers are sticking their heads in the sand as if not looking at it will make it go away.
The economy is slowing to a halt and many corrective measures are worn out or broken. There has been too much back and forth. The United States has issued and taken back stimulus packages. It is necessary to act fast and with aplomb. Economic leaders have to be clearer with their role of deciding on the most opportune moments for stimulus and austerity plans. It is becoming necessary to facilitate credit markets, a job that the European Central Bank (ECB) and United States Federal Reserve have mentioned explicitly, because inflation could become a problem.
The Eurozone needs liquidity, because its Stability Fund is not large enough to solve problems in Spain and Italy both. All of this, combined with restructuring Greek debt and recapitalizing the banks, encouraged through means to incentivize competition, employment and emerging economies, could mitigate the magnitude and severity of an almost-certain recession.
