Anti-austerity fever is sweeping Europe as policy makers decide the way to get from crisis to growth involves higher spending. Well, not so fast. The fever has already spread to the highest levels. At the International Monetary Fund’s recent spring meetings in Washington, IMF Managing Director Christine Lagarde and her deputy, David Lipton , repeatedly urged euro-area countries to focus on investment rather than budget cuts. Then came the European Commission president, Jose Manuel Barroso , who said April 23 that austerity has reached the limits of political and social support. A day later, Italy’s prime minister designate, Enrico Letta , wasted no time declaring that “Europe’s policy of austerity is no longer sufficient.” The argument is compelling: Less retrenchment will allow more money to feed into the economy, which should support domestic investment and consumption, and so stimulate growth. That in turn should reduce budget deficits by increasing tax revenue, creating a virtuous circle. Yet easing austerity involves trade-offs that might not be worth making for the weaker euro-area economies.
Paradoxically, it is healthier euro-area countries such as Germany, which aren’t considering a relaxation of austerity, that should do it. Irish Pitfalls Ireland, held up as Europe’s poster child for austerity, is a good example of the pitfalls of loosening deficit targets for a country in fiscal crisis. The government has passed half a dozen austerity bills over the past four years, and in many ways the policy is working. Last week the European Commission said Ireland’s budget deficit was 7.6 percent of gross domestic product, below its 8.6 percent of GDP target. Bond markets seem to have regained confidence in Ireland’s creditworthiness, with 10-year government bond yields hovering around an affordable 3.6 percent. Austerity measures have gone smoothly thanks in part to an acquiescent population. In Dublin, […]
Click here to view original article at www.bloomberg.com
Less than 20 cents a dayMajor Currency Pairs AnalysisForex Sentiment AnalysisUnderstand The Market10 days money back guarantee
Get notifications on new forecasts and articles.Trending Forex Articles
Germany Should End Austerity, Not Ireland
Germany Should End Austerity, Not Ireland
Germany Should End Austerity, Not Ireland
Germany Should End Austerity, Not Ireland- Germany Should End Austerity, Not Ireland
- Germany Should End Austerity, Not Ireland