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How to prevent negative economic growth in the EU

21/02/2012

The main reason for the negative economic growth in Czech Republic is its government policy of austerity, which included increase on VAT tax on housings and public budget cuts. This policy was implemented due to wish of the conservative government to reduce the public deficit to 3% from the GDP, (EU policy not taken seriously by any other country since 2008) . To me this policy seems inappropriate, since the public dept in Czech Republic is  less than 40%. If to reduce the public deficit, it would be more appropriate to do it thru economic grow, but it cant be done with increasing domestic demand, because as rightly mentioned strong propensity of the people for savings.

Czech Republic, if compared to other East European countries, has relatively good infrastructure, still a lot to be done to achieve the West European standard. If there is a wish to change the negative trend in economic growth, Czech Republic has the chance to use the opportunity of decreased demand and increase investments in infrastructure. The roads, railways, etc. are still in shameful shape and due to geographic location in the heart of the EU, investment in these facilities could have long term positive economic effect.

It seems obvious that in the following years the P.I.I.G.S. countries will have to reduce significantly their public and private expenses. This will reduce strongly the demand in EU, since they represent almost quarter of the EU population. Without demand can’t be achieved the so needed economic growth in EU, unless this demand will come from some other place.  The most reasonable source of increasing demand within EU can come only from countries with relatively low debt and potentially high perspective of economic growth. And i am not speaking about Germany, Scandinavia or Holland, but rather the Eastern European countries, with about same population as the P.I.I.G.S. countries, that on one hand have relatively low public dept, mostly bellow 50%, (except of Hungary), on the other hand in spite of being part of the European Union, have shamefully low standard of living and big deficit in infrastructure. For some unclear reason the governments in these countries are cutting the investments and expenses too. It is time Brussels initiate change of this policy and allocate financial racecourses, released from expected reduction of consumption in the P.I.I.G.S. countries, into investments in Eastern European countries. I am pretty sure, it is not only socially correct, but compared to any other alternatives; it could bring the highest yield on investment and long term positive economic growth. If implemented on large scale, this policy could bring the so crucially needed economic growth to the whole EU zone.

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