According to former New Zealand finance minister Ruth Richardson, all Western governments are bankrupt and should concentrate on structural reforms that include cutting welfare and getting out of banks.
"I don't think this is just a cyclical problem, this is a structural problem and you don't fix it by throwing more money at it," Richardson told CNBC. "The government doesn't need to spend at the level it does, it needs to look at the quality of that spending."
Richardson, who described the austere financial reforms her office instituted in 1990 as “the mother of all budgets,” found her policies labeled “Ruthanasia.”
Government, Richardson says, “should be the port of last call, not a universal entitlement for everybody” and welfare should be reserved for those who truly need it.
Richardson also believes that a government exit from the banking sector "is crucial to rehabilitating the banks themselves” and that "governments are not good owners of those (bank) assets, they do not know about risk management."
"It's a moral hazard, the more a government is in there, the less the bank, the management, the board feel they're responsible for decision-making," she says.
Richardson believes that central banks’ quantitative easing policies are making the crisis worse, not better. "The very last the financial system wants is more of the same,” she says. “That only compounds the error.”
Economist Joseph Stiglitz says Europe made a wrong bet by choosing austerity, Bloomberg reports.
If Germany, the U.K. and France remain committed to budget cutting, “that will have systemic consequences for the entire Europe,” Stiglitz told reporters in Budapest.
“A weaker Europe means the United States will be able to export less and the likelihood of an export-led U.S. recovery becomes less.”
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