The vicious circle of AUSTERITY MEASURES

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Austerity measures were one of the basic strategies for recovery of the global financial crisis in Europe but why it has been chosen? We need to revisit the origin of this persistent tendency that is sinking Europe´s economy and is helping badly for a real boost on productivity.

The common justification for the application of austerity measures is the reduction of public spending, debt and safeguard fiscal reputation, but the results are devastating and not only have pushed the economy to recession that amazingly do not reduce debt or public spending by the contrary, they increase them. In addition, if we add the impact on I+D investment and high unemployment rates we have as a result: more foreign dependence and a not sustainable growth economic model and what´s worse: not reliable. So, instead of being a tool to fight against a bad fiscal reputation , austerity measures are destroying it by generated more debt, trespassing the dangerous line of 90% (Greece: 177%, Spain 97% and Italy 133%of GDP).

On our last post we went through the great post of Edmund Phelps on Europe decline, today we´d like to invite you to see a good article of J. Stiglitz, that stress the structure of Eurozone in itself and austerity policies. Although I fully agree with Stiglitz´s approach I am seeing it from a different angle, because I do not think Eurozone´s structure represents a threat in itself, in fact this financial integration plays a key role on the recovery, but it´s true that -as it happens in general with globalization- there impacts are equally for negative and positive aspects. Is urgently needed to reestructure and unify European Union financial institutions and establish common codes and rules also extended to a coherent fiscal policy.

Thanks Prof. Stiglitz for an insightful article*

Read more:

* http://www.theguardian.com/business/2015/jan/09/europe-economic-madness-cannot-continue-greece-elections

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