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Simeon Mitropolitski is a Canadian analyst, of Bulgarian origin, and a former syndicated columnist with the Bulgarian News Agency (BTA). He is the author of several hundred articles dealing with hot political and economic topics, both national and international.
He was part of the first group of Bulgarian intellectuals and students that began the opposition movement that finally put an end to the communist regime in this country in 1989, and in 1996-1997 participated in international observation teams during the elections in several Balkan countries - Romania, Albania and Bulgaria.
In 2002 Simeon and his family moved from Bulgaria to Canada where they live now in Montreal, province of Quebec. Simeon is a Master of Political Science from McGill University and a B.A. of Political Science and History.
Global Real Estate Project
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Canada: Higher interest rates may be over soonCanada may gradually decrease its interest rates by up to one-fourth of their current level by the end of 2007. If there may be really good news for Canadian business, this is it. Nobody wants paying additional tax 'inflation'. Federal budget surpluses and conservative spending governmental policy since mid-1990s should be praised as major cause for this good performance. Debate between what I call 'conservativists' and 'deficitists' may finally be declared over. With not very good economic news coming from south of the border it becomes clear that large budget deficits are finally eroding even much stronger economy than the Canadian. To be competitive in a world of giants, small countries, and Canada is relatively small in terms of population, should use its own assets and not try copying automatically foreign models.
The nature of the debateThe debate between 'conservativists' and 'deficitists' occurred during the last coupe of years in Canada and millions were able to see it unfolding on the pages of central newspapers. The quintessential point in the debate was whether the current federal conservative and prudent financial policy is good for Canada. This policy was introduced in mid-1990s after almost two decades of large spending after which the federal debt reached almost 70% of the Canadian GDP. Now the ratio is half this maximum level. The federal government continues to report budget surpluses and to repay the debt. This is the essence of 'conservativist' approach. Its advocates say basically that strong finances are good for economy. They bring down the cost of credit, making banks turning more toward real economic actors instead of serving the government spending. This system allows less direct rentseeking from the government. Businesses waiting for tax credits and workers' unions are obviously disappointed, but at the end the whole society feels better.Wrong, say 'deficitists'. At the time that other countries get restructured helped generously by their governments Canada slips down technologically and economically. The debt is down but at what cost? Demand is down too, considering that governmental demand is also a form of demand. New technologies like air and space, biotechnologies, PC hardware, to mention just few, require high initial costs for newcomers. Government should share parts of these costs otherwise investments will fall down. Is it possible to have limited deficit and at the same time not to endanger financial stability. 'Deficitists' pointed out at examples coming form the south of the border. The period 2001-2006 saw large deficits in the U.S., but low inflation therefore allowing for low interest rates, which helped the economy jumping ahead by giant leaps. Canada didn't see a slump in 2001, but didn't see similar recovery later either.
'Conservativists' were right after allCanadian central bank will lower its interest rates substantially by the end of 2007. This will free resources from serving all debts, governmental, corporate, and personal. Beneficial effect of this policy should be felt on all levels, federal, provincial, and municipal (lower interests, thus more property sales, thus more taxes). This policy however wouldn't have been possible if the federal government reported large deficits and inflation was running high. We would have had to wait until some significant economic recession squeezes demand and tames inflation. Fortunately we don't have to wait until all this happens; we can start loosing the credit right now.'Conservativists' were right, but this is due to the peculiar economic situation of Canada and shouldn't be generalized as universally most appropriate way of dealing with economic development problems in rich countries. As small appendix for the much larger American economy Canada simply doesn't need state as major source of demand; the big demand is just across the border. What Canada must do is keeping its industries competitive, and this requires cheap credits and not overvalued currency. As a country that has already given up on being on top position in most new technologies the most important is to allow access of foreign companies, mostly American, that own such technologies. And they will come as far as Canadian economy offers them keeping their competitive edge. The era of large deficits between mid-1970s and mid-1990s in Canada is over. Small deficits may look good as technocratic tool for engineering economic development, but in reality they never work well, because they create a sense of rentseeking that ultimately makes small deficit getting very large. This is a lesson coming time and again from all over the world. Temporary convenience for some, governments, businesses, and unions, is ultimately paid by all under a form of more expensive mortgages, higher taxes and higher unemployment. It's easy to step on this road and very difficult to step away from it.
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