The last four years have witnessed a global economic crisis not seen since the great depression of the 1930’s. With the global economy as intertwined as ever, a brewing credit crisis in America swiftly sent shockwaves and a domino effect throughout the continents.
With export, import, currency valuation, national deficit and controlling inflation such interdependent components of any economy, significant changes or a crisis in one zone can quickly sprout crisis in other regions.
While the global economy limped to recovery from its lows of the 2009’s, a number of factors have recently pointed to a slowdown of the recovery and a possibility that has sent shivers down all investors – a double dip recession or worse the onset of a depression.
Such fears and general anxiety is one of the main reasons for the extreme volatility experienced in the world stock markets in recent months, with commodity prices yo-yoing as sentiments has changed daily. While everyone has looked to governments for surety, to act swiftly and to maintain stability, in truth the hands of many government particularly that of Washington is tied.
The mechanisms employed that contributed to containment and gradual easing of the first economic crisis is clearly not a long term answer. For example, while many have hoped for another round of quantitative easing in the US, throwing more “money” into solving a money crisis is clearly not a sustainable solution. The US debt is increasing by trillions each year and it’s the children of the future that will be left to suffer from the economic short-sightedness of today.
The common denominator in the crisis of 2008 and the brewing crisis of the current time is credit. While it may be easy to borrow more money to pay off your debts or to ensure the economic cycle continues, at the same time this creates a dangerous long-term conundrum that can easily lead to the collapse of a country.
The theme underpinning discussions and initiatives to calm and contain the current economic crisis is the cutting of the national deficits. National debt is a natural reality and can be key to revitalising a country, however, when the deficit enlarges exponentially and at the same time the government income declines, as per instance the population become weary to spend or job growth declines leading to higher unemployment, the government is unable to contain its debts and becomes susceptible to an economic collapse and a defaulting of its debts.
While in the previous years it was large banks that were bailed out across Europe and America, the perils have increased as governments received bailouts.
In the past year Ireland, Portugal and more infamously Greece have received bailouts. In the case of Greece, the need for larger bailouts has become a growing necessity and a stark reality. The economy is struggling, unemployment is increasing and crucially the deficit austerity measures employed as a condition for receipt of bailout funds have not kept pace with the ever increasing funds needed to plug immediate debt gaps.
With the Eurozone and the Euro become a sacred icon of the European landscape, the idea of allowing Greece to exit the Eurozone or leaving it to default on its debts has become a red-line.
As a “smaller” economy, bailing out Greece is not such a big problem. However, many now fear the worst, that other countries will soon follow foot. The credit rating of many European powers and chillingly the first cut of credit for the US have only exasperated uncertainty.
Two countries staying above water for now are Italy and Spain, both with large deficits and ambitious austerity budgets. With the volatility experienced in bond markets, both countries could easily be sucked into a vicious cycle where only significant bailouts would prevent economic ruin.
With all the talk of bailouts and financial aid, the question of just who will pay for all this is constantly overlooked. With major economies in a fragile shape, government debts already at record levels, understandably no country has jumped at the prospect of contributing bullions more in bailout funds.
As the months have passed and Eurozone crisis in particular has gathered pace, it has become ever apparent that only an all-encompassing Eurozone bailout facility could contain the crisis. This has led to controversy in a number of more established economies particular that of Germany and also in countries such as France who are particularly exposed to the Greek crisis as main creditors.
Short-term solutions should not mask the wholesale changes needed across the global economy, including tighter regulatory control of the banking system, a deficit levels that matches the profile and economic growth of a country and also a need to avoid ignoring the fiscal failing of another country as “their problem”. Your neighbour’s problem could very soon be your problem.
The need to work together will become critical with the world population fast reaching 7 billion. The demand of oil, staple foods and general resources has already pushed up global prices with global poverty threatening to increase even further than the rates of today.
A greedy mentality amongst bankers, uncontrolled capitalism and governments who refuse to look at long-term debt measures, only adds fuel to a growing fire.
Kurdistan as a flourishing economy is developing an economic foundation for a number of reasons. If the government controls debts and deficit levels at an early stage, this could safeguard Kurdistan economically for decades to come. Kurdistan has practically no debts and is self-sufficient – its spending could easily be facilitated by it growing clout as an oil power.
Much like the global crisis of the past few years, which has had minimal impact on Kurdistan with the exception of declining oil prices, the Kurdistan government must take heed before crisis strikes.
Although the Kurdish economy is in a stable shape, key deficiencies should also serve as long-term alarm bells. The lack of an effective tax system, social welfare and privatisation could undermine prosperity in the years to come.
Kurdistan should establish a solid private banking system, a facilitation of controlled loans to the general population, allow income taxes to create revenues and ensure the private sector is given firm backing.
The economy should be diversified to allow other sectors such as tourism and production to increase and to ensure that the import and export ratios are closely watched. Self-sufficiency is key and by allowing disproportionate import levels, a declining agriculture and over reliance on a single source of income, Kurdistan could become engulfed in regional and global economic crisis and more crucially become susceptible to policies of its neighbouring powers.