Time for some painful measures

Greece has said it will cut spending as its economy threatens to buckle under the weight of public debt and a huge budget deficit but it is only one of many countries in the European Union, among other regions, facing these problems.

One of the reasons for the over-reaction by international investors to the request for a debt restructuring by Dubai World is the growing concern about a sovereign default essentially that a country will announce that it cannot pay its debts, causing banks and other creditors to lose billions. At the very least, the huge deficits that some countries including the US and the United Kingdom are running up as they try to spend their way out of recession, will remain a drag on the global economy and create imbalances in the international financial system.

Ironically, recent events have shown that there is less of a chance of a debt default by Dubai and the UAE than there is in many of the supposedly advanced economies. Those countries that have run up huge budget deficits that now present a danger to the world economy must bite the bullet and begin to take the painful measures necessary for them to live within their means.