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The Eurocrisis: Duncan Black is HSRILL!!


Eschaton: Thanks, Idiots For all you have done.

BRUSSELS — Bowing to mounting evidence that austerity alone cannot solve the debt crisis, European leaders are expected to conclude this week that what the debt-laden, sclerotic countries of the Continent need are a dose of economic growth.

How about maybe resigning in shame?

Stephen Castle:

E.U. Leaders Set to Admit Austerity Is Not Enough: BRUSSELS —   Bowing to mounting evidence that  austerity alone cannot solve the debt crisis, European leaders are expected to conclude  this week that what the debt-laden, sclerotic countries of the Continent need are a dose of economic growth.

A draft of the European Union summit meeting communiqué calls for ‘‘growth-friendly consolidation and job-friendly growth,’’ an indication that European leaders  have come to realize that austerity measures, like those being put in countries like Greece and Italy,  risk stoking a recession and plunging fragile economies into a  downward spiral…. [L]eaders will discuss long-term structural reforms and better use of E.U. subsidies, while avoiding mention of the one thing that could change the climate: a fiscal stimulus from Germany, the euro currency zone’s undisputed powerhouse….

With its emphasis on punishing euro nations that exceed deficit and debt level, the agreement, or “fiscal compact,” has been described privately by one official as a plan to criminalize Keynesianism. Nevertheless, the hope is that if it gets the treaty it wants on fiscal discipline, Germany will agree to far-reaching efforts to end the debt crisis. And while some see the new, pro-growth rhetoric as empty — or even cynical — others believe that it marks a psychological turning point.

“I think it is an important shift, particularly from Germany but also from others, from the phase where it was all about fiscal balance and consolidation to a more comprehensive approach where you have an all-encompassing look at economic sustainability,” said Nicolas Véron, senior fellow at Bruegel, an economic research institute in Brussels. “It is quite promising, but at this point I don’t see it translating into immediate measures.” Those are badly needed in a Europe with more than 23 million people unemployed….

Other analysts concur…. “Even countries with relatively strong public finances such as Germany — the country’s budget deficit fell to just 1 percent of GDP in 2011 — are tightening fiscal policy,” Simon Tilford, the chief economist for the Center for European Reform in London, wrote recently. “In so doing, European governments are standing conventional macroeconomic thinking on its head. Governments are withdrawing demand from their economies at a time of pronounced private sector weakness.” Output in both the euro zone and the European Union is still around 2 percent lower than before the crisis. The Spanish and British economies are still almost 4 percent short of their pre-crisis peaks, the Italian one nearly 5 percent, and the Greek and Irish economies 10 percent to 15 percent, Mr. Tilford added….

Germans increasingly accept that this is a dangerous outlook, said Joachim Fritz-Vannahme, director of the Europe program at the research institute Bertelsmann Stiftung. “Many people now say that it will never work to push all the Southern European countries into austerity, hoping that, one day, they will pay back what they owe,”’ he said. In Germany, the opposition Social Democrats have been calling for a new Marshall Plan for Europe….

“The recognition is coming that austerity won’t work,”’ said Mr. Fritz-Vannahme, “but how to get beyond austerity politics is completely unclear. There is no master plan under discussion in this country.”