Britain and Germany are headed for a major clash on Friday when Prime Minister David Cameron travels to Berlin to tell Germany’s Angela Merkel that his country will not pay to bailout countries that use the euro currency. Britain is not part of the Eurozone and does not see why it should be penalized for the fiscal follies of others.
The spat is the latest in the crises of government debt in the US and Europe, which many now fear could kick off a deep recession in Eurozone countries. This is serious because their collective GDP and trade are much larger than China and almost equal to the US.
There are many reasons for the debt crises but the bottom line is an excess of expenditure over income in each of the affected countries, worsened by falling currency values that raise the nominal amount to be repaid.
This crippling imbalance between income and spending has a root cause upon which other more temporary causes collect layer by layer until the pyramid starts to cave in. That root cause is the ever-increasing number of people making demands of the global economy month after month. When there isn’t enough to cover everyone’s desires, competition heats up causing markets to push up the prices of our most coveted needs.
Demand and supply are brought to equilibrium by excluding those who cannot pay the price. Governments are then obliged to pay from taxpayer receipts to alleviate the living conditions of those at the pyramid’s bottom half, including through social welfare, health and food subsidies. That raises government debt to the point where it becomes unsustainable because lenders ask for too high a price, especially when economic growth falters and tax receipts become uncertain.
Thus, we get to the debt crises causing so much economic fear and the battle of Europe’s titans, Britain and Germany. Surely, the search for solutions will bring financial palliatives and remedies in coming months, including some severe austerity and brutal tax increases in several European countries and perhaps the US. Failing a miracle, this would slow down economic growth by dampening investment and jobs, further boosting government debt.
Meanwhile, the root cause will continue to worsen for decades. The United Nations estimates that the world population increased by one billion people in just 12 years to reach seven billion in October 2011. It will add another billion in 14 years to reach 8 billion in 2025. There may be over 9 billion people in 2050 and over 10 billion by the end of this century.
Just think of what this means for food and natural resources, including fossil and gas-based energy. Nearly all the population growth will happen in Asia, Africa and Latin America worsening the competition for resources and deepening social inequity. The good news is that people are living longer and the number of infant deaths has dropped because of more food, sanitation and medicine. Everything else is a challenge.
UN Secretary-General Ban Ki-moon warns of dire consequences if the international community does not come together to create equitable and humane solutions. Alarm bells are already ringing. Growing public protests around the world demonstrate that mounting inequality, economic uncertainty and market volatility are at crisis points. The biggest challenge facing governments and institutions is that citizens are losing faith in their abilities to find and apply workable solutions. With a billion new people looking for food, jobs and decent lives, that trust deficit is sure to worsen.
Women and young people are the world’s next emerging economy because they make up more than two-thirds of the global population. They deserve more attention as do so many other aspects. For instance, the most precious resources for people’s wealth, health and well-being are the earth’s natural capital, which includes the air, rivers and oceans, soils and forests, and flora and fauna.
The point is that the current debt crisis is a symptom of many deeper and politically divisive ailments. It is the tip of an iceberg of confusion about where all of us in the world want to be in 10 years. The answers will determine whether these kinds of debt crises become chronic fixtures, since the population and needs explosions exacerbating them cannot be rolled back.