Fiscal Austerity Versus European Society

Fiscal austerity is a poor substitute.

Fiscal stimulus is turning into fiscal austerity and a drag on growth.

Moreover, the fiscal austerity they prescribe delays economic recovery.

Europe is mired in its oxymoronic commitment to expansionary fiscal austerity.

BERKELEY Fiscal profligacy did not cause the sovereign debt crisis engulfing Europe, and fiscal austerity will not solve it.

So political constraints may prevent fiscal austerity and structural reforms from being implemented.

NEW YORK A wave of fiscal austerity is rushing over Europe and America.

Fiscal adjustment is jargon what austerity is always about is the distribution of income.

Unemployment was soaring, and austerity, rather than restoring fiscal balance, simply exacerbated the economic downturn.

Certainly, the UK was playing with fiscal fire and needed some commitment to earlier austerity.

Fiscal stimulus was replaced by austerity, with predictable and predicted adverse effects on economic performance.

Though privatization plans lagged, the Greeks won high marks for doubling down on fiscal austerity.

High public debt is also being invoked in support of fiscal austerity in many developed countries.

But both have chosen fiscal austerity, all but ensuring that their economies transitions will be slow.

And, if current European governments are not committed to austerity and fiscal consolidation, then which governments are?

The first is between austerity and growth that is, short term deficit reduction and additional fiscal stimulus.

Germany and the European Central Bank are pushing aggressively for early fiscal austerity the United States is worried about the risks of excessively early fiscal consolidation.

So, if countries in the eurozone s periphery are forced to undertake fiscal austerity, countries able to provide short term stimulus should do so and postpone their own austerity efforts.

Moreover, as the recession deepens, resulting in even wider fiscal deficits, another round of austerity will be needed.

And, because tax revenues, too, will not recover, the gap will have to be bridged by fiscal austerity.

US President Herbert Hoover s administration did not initially respond to the depression by emphasizing the need for fiscal austerity.

Second, the effects of austerity were exacerbated by the choice to pursue nominal, rather than structural, fiscal deficit targets.

With fiscal austerity all the rage, they have given up ensuring that people can buy and industries can produce.

And now, thanks to the fiscal compact, even the eurozone s core will be forced into front loaded recessionary austerity.

First, we must accept that austerity measures, necessary to avoid a fiscal train wreck, have recessionary effects on output.

But austerity undermines growth, worsening the government s fiscal position, or at least yielding less improvement than austerity s advocates promise.

Austerity might have worsened the slump temporarily, but it did deliver fiscal sustainability without permanent damage to the economy.

BERKELEY Fiscal profligacy did not cause the sovereign debt crisis engulfing Europe, and fiscal austerity will not solve it. On the contrary, such austerity has aggravated the crisis and now threatens to bring down the euro and throw the global economy into another tailspin.

What went wrong in Greece was not the fiscal adjustment. On the contrary, austerity was perhaps too successful (and painful).

The danger is that the discrediting of hasty austerity could undermine the case for fiscal responsibility in the long run.

And Germany should delay its austerity plan, as the last thing that the eurozone needs is a massive fiscal drag.

But fiscal austerity will envelop most advanced economies this year, rather than just the eurozone periphery and the United Kingdom.

On this view, if fiscal austerity relieves households of the burden of future tax increases, they will increase their spending.

Growth may be close to zero by the end of this year, as fiscal austerity kicks in and stock markets fall.

It believed that the peripheral economies would deliver serious fiscal austerity, notwithstanding their dreadful growth outlook and general lack of competitiveness.

We should bear in mind this constraint on economic knowledge as the global drive for fiscal austerity shifts into top gear.

Similarly, some of the results reported by Reinhart and Rogoff have been used by politicians and others to justify fiscal austerity.

The severity of Europe s economic downturn, deficiencies in the euro s design, and ill conceived fiscal austerity measures are all fueling the exodus.

A new fiscal compact and new governments in Greece, Italy, and Spain spurred hope of credible commitment to austerity and structural reform.

Austerity based fiscal consolidation is likely to fail, because sustainable public budgets are best achieved on the basis of strong economic growth.

For all of them, what matters is that the sorry fate of the Reinhart Rogoff paper undermines the case for fiscal austerity.

In particular, Germany demands more fiscal belt tightening from heavily indebted Southern European countries, whose unions (and voters) are rejecting further austerity.

Italy, for example, would save up to 4 of its GDP its budget would move into surplus and fiscal stimulus would replace austerity.

To reduce the risk of financial pressures on Italy and Spain, both countries need to press ahead with fiscal austerity and structural reforms.