The sovereign debt crisis – it is now clear – has its roots in politics rather than the economy. In the United States the now close worries 'fiscal cliff', i.e. the automatic tax increases (failing of the rate cuts) and automatic spending cuts that will kick in at the end of the year, with a potentially devastating recessionary impact. In Europe, there is the evident incapacity of the rulers to take decisive measures to ensure the permanence of the euro.
And in Japan, as became evident yesterday, the political deadlock prevents the approval of the measures authorizing the issuance of new debt, forcing the government to postpone transfers to local authorities, and thus forcing the Bank of Japan to intervene massively with injections targeted liquidity funds to allow provinces and municipalities to continue functioning. Analysts expect that in October the opposition (which controls the Senate) will allow the approval of the financing law (for two-fifths of the budget), in exchange for setting a date for the elections. Meanwhile, political paralysis threatens an economy that is already weak, given the collapse of exports to Europe.
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