Just like the road from ill health to recovery traverses testing, diagnosis, treatment and recuperation, the path of economic malaise must go through confusion, order and development before reaching its destination – prosperity. You might say that confusion is part of the problem, not the solution. However, I look at confusion as a state that will force nations to question their status quo, sacred cows, long-held beliefs and ossified practices, which have brought the world to its current sorry pass. This questioning is necessary for restoring order in a world where the new normal demands different thinking and responses. Which is why I believe that the confusion surrounding the Greek bailout plan – the proposed and subsequently scrapped referendum about accepting the European bailout package, the 50% debt write-down secured from lenders, and eventually, transfer of power to a unity government – has its positives. This confusion is an indication that Greece’s decision makers are willing to consider various alternatives, unlike some other European Union member countries, which jumped to conclusions to the detriment of the regional economy.
We can only hope that the United States and Europe, which are still in the throes of economic confusion, will find their way to order soon. A comparison of their responses to the financial crisis is a study in contrast. While the U.S. decided to spur growth by injecting funds through their Troubled Asset Relief Program and similar measures, 3 years and US$ 10 trillion later, they are still battling high unemployment and a level of poverty not seen in the last 50 years. On the other hand, Europe took an austerity route, but fared no better, and is on the threshold of an economic blowout. So far, neither the spending nor the saving approach has succeeded. Amidst this confusion, the one thing that is clear is that U.S. and Europe don’t need more bailouts, but rather a new way of thinking to tackle core issues like unemployment.
How can these economies claw their way back to order? First, by recognizing that the cure does not end with diagnosis, nor does it lie in palliative sops. Rather, they must attack the root of the malaise, namely unemployment and inefficient usage of capital, through better utilization of human resources, technology and investment funds.
However, it is a fact that many of these countries lack the wherewithal to solve their problems on their own. A good example of this is the European Financial Stability Fund, which is seeking contributions from the BRIC countries. Today, the rescue of “too big to fail” regions like Europe needs concerted global development action, not only because they are short of resources, but also because of the cascading impact of their failure on the rest of the world. Once they hammer out a plan to attack the root cause of the problem, they will be on their way to reclaiming prosperity.