The Wrong Austerity Cure (July 21st 2012) The Wrong Austerity Cure (July 21st 2012)

Laura D’Andrea Tyson the 65 year old American Economist Professor and former Chair of the US President’s Council of Economic Advisers during the Clinton Administration, has published an article on the Project Syndicate titled ‘The Wrong Austerity Cure’. In the article Tyson states “Italian Prime Minister Mario Monti and French President François Hollande are right: Europe needs bold, coordinated policies to promote growth, along with market-based structural reforms to foster competition and an easing of fiscal targets until output and employment recover. But how can significant new growth initiatives be financed? The reality is that the rest of Europe cannot succeed in restoring growth without Germany, and Germany remains wedded to the austerity cure. With a modest fiscal deficit, record-low borrowing costs, and a huge current-account surplus, Germany has the financial firepower to unleash a significant stimulus. But Germany sees no need to stimulate its own economy, and is willing to consider only modest eurozone measures… Despite pleas from the IMF and the OECD, Germany also remains implacably opposed to Eurobonds, which could ease the funding constraints of other eurozone members… the worsening banking crisis, with deposits fleeing from the eurozone periphery, is further strangling Europe’s growth prospects. It is probably too late to save Greece. But a shift towards policies to promote growth, supported by the easing of deficit targets and the issuance of Eurobonds, is essential to bring Europe back from the brink of sustained recession, to stabilise Europe’s financial markets, and to prevent another significant disruption to global capital markets.”


Inspired by Project Syndicate image source World Economic Forum