Recently a significant discussion has emerged among members of governments in developed countries and famous academics. Shall countries initiate fiscal policy tightening or is it too soon for such policies?

Secretary of Treasury Geithner and President Obama in person declared on behalf of the USA that it is too soon to start tightening budget expenditures. Their message was particularly to Germany, but they also spoke to the other European Union (EU) countries that have current account surpluses and to China. Germany argues the exact opposite; Chancellor Merkel recently complained about the deteriorating public finance across the EU.

A similar discussion is also held across US economists. For instance, Nobel Price Winner Krugman states that at this stage it would be a huge mistake to step on the brake with respect to public finance. He strongly criticizes those who argue that public expenditures should be cut since public debt is increasing.

A different version of the discussions is carried out on the basis of famous economist Keynes. Since 1980s quite 'showy' models as to how intervention of the state in the economy will make things worse has been formed particularly in the USA. The 'show' part stems from the advanced mathematical techniques employed in these models. But, in order for these models to be acknowledgeable; i.e. for the techniques to work, the models should necessarily be quite limited. And this necessity reduced the realistic features of the models. But it was okay; after all Keynes was 'dead'.

The global crisis proved that Keynes was not dead, though. Developed countries which suffered severe economic contraction due to the crisis and which had the means increased public expenditures rapidly and cut taxes. The prescription written by Keynes for such cases was abided by strictly.

However the intended increase in public expenditures also pushed up public debts of these countries. For instance in Eurozone, the ratio of public debt to national income rose by ten points from 2008 to 2009. Over the same period, the debt ratio of Germany, who defended fiscal tightening and took steps to this end, increased from 66 to 73 percent.

This was a new chance of 'attack' for those who insisted that Keynes was dead. The attack was launched on the basis of the European Union countries which were recently at world's agenda due to the problems facing them. They argued this was the only outcome of the increases in public expenditures as they have told before. 'Wrong' policies should have been given up as soon as possible, thy maintained. In short, they claimed that public expenditures should be cut down by no time.

A part of the European Union countries struggling with problems, Greece for instance, already had problems way before the burst of the crisis. Similarly, Italy had record high debts since the second half of 1980's. And for some others, Spain for instance, public finance was not the main problem at all. But they did not care.

I have hard time in understanding the discussions. As a Beşiktaş fan, who was happy for the championship of Bursaspor and would also be for that of Gençlerbirliği, I cannot see how people could believe that a single economic prescription of a single economic school would be valid under any circumstances. It is particularly unbelievable how some still argue that the market is 'almighty' and market mechanism 'should never be intervened in' despite all crises we suffer.

This is what I see: When assessed shallowly, Keynes was 'dead' for Turkey in the milieu following the 2001 crisis. But the policies we should have implemented in the face of the global crisis were exactly the Keynesian policies; i.e. Keynes was 'alive'.

Here 'shallowly' refers to this: Keynes did not say increase public expenditures to tackle economic contraction even in a case where debt rates went as high to the sky, real interest rates reached record-high, and the confidence in the economy hits the bottom. That prescription is for countries where the confidence in the economy would not be shaken but strengthened if implemented. It currently can apply for Germany for instance, but not for Greece. Or for Turkey in the face of the global crisis, but for Turkey of the 2001 crisis.

This commentary was published in Radikal daily on 21.06.2010