The Global Economy in Turbulent Times

CHAPTER 31 Now’s Not the Time for Austerity¹

Since 2008, policy debate continues to be centered on the correct mix between austerity and growth, and the need for fiscal sustainability, or what economists call budgetary consolidation—that is, measures to ensure that government budgets are balanced over time so that the servicing of rising debts is sustainable, without passing on too great a burden to future generations. The focus of public policy is now directed at the pace of fiscal retrenchment—that is, how best to bring down deficits and debt to provide for “more growth and less austerity,” according to French President Francois Hollande, in order to provide sufficient leg room to create more jobs and ease human misery.²

In today’s circumstance, it is proven that nations “can’t cut and grow.” Already the International Monetary Fund (IMF) concluded this spring that the “US is tightening fiscal policy too much, too fast and it’s in the wrong place . . . and these spending cuts are both unwise and unnecessary.”³ It added that Spain had no need for “upfront heavy-duty fiscal consolidation”; it just needs more time to better manage its fiscal squeeze. Indeed, the time has come for Europe to decide how to better support demand; how to better balance the pace of fiscal consolidation with the need for growth; and how best to ensure surplus nations can contribute more to demand as deficit economies undergo adjustment. I think the time is now right for Europe to relax its self-defeating ...