Budget Cut Conflicts between the US and Europe

28 06 2010

To most people, budgeting is not an exciting activity to engage in, and the same is true for politicians. Governments are spending more than they are generating, and are realizing that this leads to enormous amounts of risk when the economy is weak.

In Europe, politicians are seeking to cut governments spending, and the US is trying to convince them that that is not the solution. The US insists that cutting government spending will actually hurt the recovery of the economies that are swimming in debt.

President Obama explains that cutting budgets too soon could prolong recovery, and that continuing to spend money will foster economic growth. (The US Federal Deficit is 11.3% of the GDP, and is projected to reach $1.6 trillion by the end of this year.)

Yet, European countries are determined to reduce spending in the public budgets. They claim that the cuts are necessary, as opposed to raising taxes in order to fund further spending, and the governments taking more responsibility regarding spending will build confidence.

These differences of opinion were among the many items on the agenda discussed over the weekend at the G20 summit. Dominique Strauss-Kahn, head of the International Monetary Fund expressed that he felt more encouraged about the willingness of G20 members to coordinate their economic policies so that global recovery does not slow down or come to a halt. He expressed that if all countries tighten their budgets at the same time, it could destroy recovery, and that it would be okay if countries moved at different speeds.

What are your thoughts?

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