The early impact from austerity is going to be a hot story very soon, as we’re already starting to get data in.
And at least so far — remember, this are long-term projects, but people are impatient — have not been encouraging.
In Greece tax revenues have collapsed, and unemployment is surging. In the UK confidence is already starting to slump, despite radically ambitious reforms. In Ireland, bond spreads are blowing out. In Spain they’re backtracking on austerity, and so on, and so on. We’ll know more in the months and weeks ahead.
Economist Joe Stiglitz is warning of an unforced error here.
Nobel Prize-winning economist Joseph Stiglitz said the European economy is at risk of sliding back
into a recession as governments cut spending to reduce their budget deficits.
“Cutting back willy-nilly on high-return investments just to make the picture of the deficit look better is really foolish,” Stiglitz told Dublin-based RTE Radio in an interview broadcast today. Euro-area governments stepped up efforts to cut their deficits to below the European Union limit of 3 per cent of gross domestic product after the Greek crisis earlier this year eroded investor confidence in the 16-member currency union.
He went on to point out the absurdity and arbitrariness of the 3% number, and the obsession with the debt side of the balance sheet only.
Anyway, again, it seems it can’t be emphasised enough that the market will probably render its verdict very quickly. And if tax revenues deteriorate and deficits widen, it may be all well and good to talk about long-term restructuring, but that means nothing if immediate liabilities can’t be met.
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