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Friday, May 31, 2013

iAGS 2013 is titled Failed Austerity in Europe: The Way Out

The report was commissioned by the S&D Group in the European Parliament and prepared by three economic institutes: the OFCE (Paris); the IMK (Düsseldorf) and the ECLM (Copenhagen).

My annotation of the Executive Summary
The euro area suffered primarily from a balance of payments crisis due to the build-up of current account imbalances between its members. 
I would argue that that was the root of the EZ crisis, and fully agree with  the authors who refer to
a fallacious diagnosis according to which the crisis stems from the fiscal profligacy of member states
 If Greece and, to a lesser extent, Portugal are guilty of fiscal profligacy does not change the core argument. Greece is a very special case.
The sustainability of public debt is a major concern for national governments, the European Commission and financial markets, but successive and unprecedented consolidation programmes have proven unsuccessful in tackling this issue.
I am not quite happy with that. The sustainability of public debt is definitely NOT the  issue of the consolidation programmes of all EZ members. The issue is, at least in the short-to-medium-term, to bring down annual deficits to the level of 3% of GDP as provided for by the Growth and Stability Pact. It was an issue for the countries under "troika" loan support.

During normal times, sustainability of public debt is a long-term issue, whereas unemployment and growth are short-term ones. Yet, fearing an alleged imminent surge in interest rates and constrained by the Stability and Growth Pact, and although transition towards more normal times had not been completed, member states and the European Commission reversed priorities. 
This is somewhat odd. What do the authors suggest is that governments made their priorities to increase unemployment and depress growth.

They go on with this
But it is equally reflecting a dogmatic view in which fiscal policy is incapable of demand management
One can accuse the ECB, Commission, Eurogroup, IMF, and also national governments of many things but not that they are dogmatic neo-liberals.

As I assume the report itself is similarly slanted... so I will pass it by.

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