The doubts on sustainable global recovery are now being corroborated by the ongoing debt crisis that began in Greece a few weeks back. The debt crisis aggravated simply because the investors refused to buy government bonds. The investors feared of debt default by the government

in a situation of unprecedented rise in the debt amidst continued shrink

in the economy. This has again created havoc in

the world in general and Europe in particular with the possibilities of likely contagion type effect. There are fears that, in the first round, the crisis may emerge in Portugal and Spain. Together with Greece, these are

the highly indebted countries in Europe. Altogether there are 16 very weak economies in the Europe at the moment which are on the threshold of severe debt led crisis. IMF forecast shows that by 2014, the ratio of debt to GDP in developed capitalist countries would reach 115 percent.

In addition to the turmoil in stock markets globally, the impact of debt crisis on euro has been rather devastating. In recent weeks, the euro has fallen sharply against the US dollar. However, this does not reflect any inherent strength of the US currency either. The US is the world’s biggest debtor and continues to be so. It is not accidental that the debt crisis loomed in Europe after the record high budgetary deficit presented to the US Congress. The recent rise in the dollar is the result of a flight to safety by investors. The investors have gain started fearing the collapse in world asset bubbles and, hence, consider US Treasury bonds to be a temporary haven. The point to be noted is that the present reversal in the dollar’s decline is the outcome of the deepening of the crisis in the world financial markets. This again reinforces the possibilities of reemergence of economic recession before the full recovery.

Why it is so? The crux of the problem with the ongoing economic revival policies is that they are following the same path of economic bubbles as in the pre-financial crisis period although through different institutional means and tactics. The difference is that previously it was market-led bubbles created by speculators in the property markets backed by banking oligarchy and stock market brokers. This time it is the state led bubbles depending on the excessive deficit financing and unsustainable debt. As is well known, states came out with mammoth financial bail out and fiscal stimulus plans amidst unimaginable evaporation of capital and wealth that ever happened in history. These were also accompanied by very cheap credit policies. All these were led by the USA. The trillions of money primarily mobilized through deficit financing, however, were directed to give quick benefits to the banking oligarchy. Although this enabled the recovery of the economy at the aggravated level in many countries including US, the huge dividends and profits accumulated through bailouts were used as a means of fueling speculation on risky assets such as stocks, bonds, commodities and currencies. The major problem of the ongoing policies or program packages is that

they overlooked structural problems and paid least attention on the urgency

of raising production and productivity in the real sectors coupled with employment-led massive investment in infrastructures. The severity of structural problem is reflected by the continued rise in unemployment even in a situation of revival in the economy.

Now it seems neither the market nor state led options are working which indicate deepening crisis in the capitalist system. To resolve the debt crisis, the routes of strong austerity measures have been proposed or are under consideration. They additionally indicate that the ruling elites are not in favor of deep-rooted structural reforms. Paradoxically, a system is being forced in which affluent class is always awarded even if the crisis is fueled by it and the people in general are punished even if they have no role in the crises. There are now symptoms that the austerities are going to intensify the social conflict.

To bail out Greece from the debt crisis, strong conditions have been put by the EU. They include reduction of budgetary deficit to below 3 percent of GDP by 2012 from the present 12.7 percent. There is also a demand for sweeping cuts in public-sector jobs and wages, and social benefits besides the condition to impose new consumption taxes. A 10 percent hike in fuel prices has also been conditioned. Even with such harsh conditions, there are differing views in EU in support or against the bail out. All together, sixteen countries have been warned by the EU for similar preparedness. But, there are strong signs of resistance by the working class in both the public and private sectors as the strikes and demonstration in Greece against such measures indicate. These reveal another form of

crisis beginning for capitalism. For us, these developments remind that encouragement to the mercantilism led economic regime coupled with pro-cyclical policies can be more devastating to countries like Nepal. We have to rethink the ongoing approaches and policies before it is too late amidst looming crisis in the economy.