Growth-versus-austerity debate

Tuesday, May 22, 2012 Francisco Carneiro 0 Comments

TAGS:

Daniel Gros gave a useful reminder that the growth-versus-austerity debate in Europe is not new. About 15 years ago, Europe had a similar episode: ‘In the early 1990’s, when the plans for the European Monetary Union (EMU) were drawn up, Germany insisted on a "Stability Pact" as a price for giving up the Deutschmark. When Europe fell into a deep recession after 1995, attention shifted to growth, and the "Stability Pact" became the "Stability and Growth Pact" (SGP) when the European Council adopted a resolution on "growth and employment" in 1997. The need for growth is as strong today as it was 15 years ago. In Spain, the unemployment rate then was as high as it is now, and in Italy, it was higher in 1996 than it is today. Politically, too, the background is the same: the "G" was inserted into the SGP under pressure primarily from a new French administration (at the time headed by Jacques Chirac). Today, France has again given the political impetus for a shift to growth.’ (6) What Europe is going through, the US will need to confront in the not-too-distant future, beyond economists and pundits debating growth-versus-austerity.　 The Congress and the White House will need to face the impending ‘fiscal cliff’ and debt sustainability.　 I don’t know anyone who is ‘anti-growth.’　The issue is whether economic growth should be bought through fiscal spending, as has been the case in Japan for 15 years. I don’t think Japan is a good model for emulation. Every time the growth-versus-austerity debate came up in Japan, the growth camp always won the debate.

My Thoughts on Currencies

Stephen L Jen (London)