Too little, too late in Europe

[Valin]

AEIdeas:

Desmond Lachman

May 29, 2013

 

 

Todays decision by the European Commission to give countries like France, Spain, and Portugal an additional two years to attain their budget deficit targets is welcome. It at least suggests that the Commission is finally coming to recognize how destructive its policy of imposing severe budget austerity on a European economy that is mired in its longest recession in the post-war period and that is stuck in a Euro straitjacket that precludes devaluation as an offset to budget austerity has been. However, it is very doubtful that this easing in budget austerity will by itself do anything to extricate Europe from its recession anytime soon.

 

The extension of the date by which budget deficit targets are to be attained does not imply that the economies of the affected countries are to receive a fiscal policy stimulus. Rather, it means that those countries are to be subjected to a lesser degree of budget tightening in 2013 than otherwise would have been the case. It also means that their economies will now continue to face a meaningful fiscal headwind for two more years than was originally envisaged.

 

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[Valin]

Austerity and Its Discontents

After a period of pushback, proponents of austerity are retaking the intellectual high ground and promoting responsible budgeting throughout the developed world.

Michael M. Rosen

May 29, 2013

 

BRUSSELS, BELGIUM — Perched on a knoll rising gently above a man-made pond in Brussels’s stunning Parc Leopold sits the stately five-story granite building that once housed Europe’s first parliament. Years ago, that legislature began splitting time between Strasbourg, Luxembourg, and a sleek new building in Brussels.

 

The migration of the EU parliament is a fitting metaphor for a fast-moving trend that has taken hold on the Continent in the wake of its collapsing economies: the imposition of, and now the attempt to roll back, a series of measures to trim spending that Europeans often label, in a derogatory fashion, “austerity.” But after a period of pushback, pro-austerity forces are gaining strength by promoting responsible budgeting throughout the developed world.

 

Austerity, often known in the United States as “fiscal responsibility,” has stirred a heated academic and policy debate on both sides of the Atlantic. As austerity has been imposed by the European Union on the wayward, debt-laden countries on its periphery, in part on the basis of scholarly studies demonstrating its importance, many of those countries have bristled at its restrictions, as have left-leaning economists worldwide.

 

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