financial crisis

The world’s financial markets are hurtling towards a new phase of crises ranging from currency, to balance of payments, to sovereign debt, to banking crises. The monetary tightening policies of the United States Federal Reserve and the European Central Bank will only precipitate crises in emerging markets as well as peripheral eurozone economies, which will have global repercussions.

A near-unprecedented turn to negative interest rates to trigger a recovery has characterised the monetary policy in several developed countries and in Europe. This is the result of a shift away from fiscal policy to an almost exclusive reliance on monetary policy, involving quantitative easing and low interest rates, in macroeconomic interventions across the globe. The failure of this macroeconomic stance has led to the phenomenon of negative rates in countries other than the United States, and the first sign of even a partial recovery in that country has been enough to set off a reversal.

Three developments, namely, the decline of parties, poor governance and a growing financial crisis with negative economic growth are collectively responsible for the political instability Uttar Pradesh has experienced. Due to ethnic mobilisation, parties confined to their narrow sectarian bases have been unable to aggregate public opinion, obtain majority support and form stable governments. This has led to short-lived coalitions, which have not been able to formulate long-term policies that can address the felt needs of the people contributing in turn to the breakdown of governance and instability. Fiscal indiscipline by governments has also pushed the state into a debt trap and serious economic decline, which is responsible for the disillusionment among the electorate witnessed in the recent elections. These negative features have developed since the late 1980s. The paper concludes that reform of parties is an urgent necessity without which the prospects of a functioning party system, effective governance and political stability remain dim.