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EDITORIAL - Lessons from Europe: take tough decisions

Published:Wednesday | May 9, 2012 | 12:00 AM

Having noted the outcomes of last weekend's parliamentary and presidential elections in Greece and France, where incumbents were defeated, conventional wisdom will be for the Jamaican Government to resist tough fiscal reform.

That would be a mistake, not only laying the basis for a deeper collapse of the island's economy, but making it more likely that Portia Simpson Miller's People's National Party (PNP) will lose the next general election, constitutionally due at the end of 2016.

The point is that Mrs Simpson Miller has what neither the beaten French president, Nicolas Sarkozy, nor Greece's mainstream parties, the socialist PASOK and the conservative New Democracy, didn't: time. So, should the PNP do the right things now, it will begin to reap the benefits of fiscal stability and economic growth well ahead of the next general election. With these come a better chance of victory.

This, of course, is a more difficult concept to internalise and embrace than the images of incumbents being punished by electorates that have had to face economic austerity. But the problems of Greece and France, and the other troubled economies of Europe, did not happen overnight. Their crises were the results of long years of profligacy, cruelly exposed by the global financial meltdown of 2008.

Jamaica is in a similar position. Our debt of nearly $1.7 trillion - accumulated and frittered away by imprudent administrations over several years - is, at 131 per cent of GDP, nearly as bad as Greece's and worse than most others. It is an unsustainable burden that impedes robust growth, evidenced in a less than one per cent annual average expansion of output over the past two decades.

The Greeks maintained a chimera of well-being until the creditors came calling, forcing them into reduced circumstances and reliant on the support of European friends and neighbours. The Greeks have had to pay a heavy price for the bailout and showed their resentment with last weekend's vote in which the far Left and neofascists entered the Parliament.

Finding the right balance

In France, Mr Sarkozy's policies, aimed at bringing fiscal discipline to the government and limiting the size of the state and the entitlements therefrom, were not embraced. Hence, François Hollande's victory on Sunday.

Curiously, while Mr Hollande has called for growth policies to stimulate the French and other European economies, his spokespersons have argued that his presidency will not be based on fiscal recklessness. The issue is to find the balance between stimulus spending, including by the private sector, and government discipline.

This, though, is more problematic for the Greeks, who are still dependent on their European partners on bailouts to pay their debt. But that comes with austerity, unless they ditch the euro and return to the drachma, a risky business of grave uncertainties. Whatever happens, even if their European partners soften the bailout terms, the Greeks will face tough times.

There are, as we have noted, lessons in Europe's fiasco for Jamaica and the PNP Government. The most salient of these is that the Government should not dither, or seek to avoid short-term discomforts with piecemeal reform. The earlier the action, the quicker the recovery and greater the dividend.

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