Austerity Watch

prospect.org — Greece finally reached an agreement today on the measures that will accompany the new loan package from its European partners and the International Monetary Fund. The measures agreed on are draconian. Given the death blow to domestic demand that the new wave of austerity will produce, the Greek economy, already seriously depressed, will grind to a halt.

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businessweek.com — The euro zone is in failing health, and the European surgeons are arguing bitterly at the operating table. It’s the profligate Greeks, whose screw-ups helped drag Europe into its deepest crisis since World War II, who are mostly right in this argument—and the disciplined, hard-working Germans who are mostly wrong. Europe’s economy is already so weak that Teutonic belt-tightening, however meritorious in ordinary times, threatens to push the Continent into a deep and long-lasting recession. Austerity got a fair shot in Europe in 2011, and it’s failing.

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washingtonpost.com — Right now, the European countries facing debt crises are all being told the same thing: Austerity is the answer! Cut spending, raise taxes, pay off your debts. Now. The pitfall, of course, is that austerity measures could trample the already-fragile growth in places like Italy and Spain, which will, in turn, just exacerbate their short-term debt problems. As an example, the OECD is predicting that Britain’s austerity experiment could push the country into recession, which might, in turn, lead to a higher debt-to-GDP ratio than before the Cameron government began slashing. So here’s a question: Why don’t countries like Spain or Italy or France try to do what the Obama administration has proposed in the United States? Enact some stimulus this year, while the economy’s weak, and then cut future spending. Avert a recession now, austerity later.

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huffingtonpost.com — Europe is now on the very edge of an economic abyss. And Germany is finding that it cannot survive as a smug island of fiscally conservative prosperity while the rest of Europe goes down the tubes. It is anybody's guess whether Europe's leaders will shift course in time. If they fail, it won't be pretty. The fact that Germany's fate is now more closely linked to that of its neighbors actually offers a ray of hope. But then on Thursday, as Americans were taking a day off for Thanksgiving, the unthinkable happened. Germany had trouble selling its bonds. The bond market, in its panic, was fleeing even the safest haven. Europe is now approaching a Lehman Brothers moment, where nobody trusts anybody else's promise to repay a debt.

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nytimes.com — Is it possible to be both terrified and bored? That's how I feel about the negotiations now under way over how to respond to Europe's economic crisis, and I suspect other observers share the sentiment. On one side, Europe's situation is really, really scary: with countries that account for a third of the euro area's economy now under speculative attack, the single currency's very existence is being threatened — and a euro collapse could inflict vast damage on the world. On the other side, European policy makers seem set to deliver more of the same. They'll probably find a way to provide more credit to countries in trouble, which may or may not stave off imminent disaster. But they don't seem at all ready to acknowledge a crucial fact — namely, that without more expansionary fiscal and monetary policies in Europe's stronger economies, all of their rescue attempts will fail.

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csmonitor.com — Not only is the United States slouching toward a double dip, but so is Europe. New data out today show even Europe’s strongest core economies – Germany, France, and the Netherlands – slowing to a crawl. We’re on the cusp of a global recession. Policy makers be warned: Austerity is the wrong medicine. What’s going on in Europe’s core? Partly it’s a loss of confidence due to debt crises in the periphery. But that’s hardly all. Europe depends on exports – especially to Asia, India, Latin America, and the United States. But exports to China and other emerging markets have been dropping. China, worried about inflation, has pulled in the reins on its sizzling economy. Brazil has been pulling back as well. And as the United States economy sputters, exports to America have been slowing.

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