The Great Debate: Austerity Vs Growth in the Eurozone
Last weekend’s election results in France and Greece confirmed what nearly all observers had figured out: that the apparent commitment to austerity within the eurozone is crumbling, only months after 17 European Union member nations signed a fiscal compact committing them to maintaining strict caps on spending and borrowing.
That pact needs to be ratified by at least a dozen eurozone members by year-end in order to take effect. Despite German Chancellor Angela Merkel’s ongoing commitment to austerity that lies behind it, the future of the agreement seems in doubt in the wake of the political chaos in Greece and the election of a Socialist Party candidate to the French presidency, whose campaign platform revolved around his opposition to austerity.
Politics shapes much of the surge of opposition to austerity, of course; it’s a painful process for politicians to dictate spending cuts, and tantamount to professional suicide. But there has also been criticism from amongst some economists, arguing that austerity and the deflation that will accompany it may actually lead to longer recessions in countries like Greece and Spain. At least one IMF official involved in negotiating Greece’s austerity budget, admitted that the spending cuts insisted on as a condition of the country’s bailout are harming the country, and that structural reforms will have to move ahead more rapidly if the country’s economy is to recover and thrive.
In the coming weeks and months, striking the right balance between austerity and growth is likely to emerge as the key question to which eurozone members will have to find an answer. As that discussion gets underway, here is a series of charts, presented as a slideshow, that AlphaNow hopes readers will find informative in considering the arguments on both sides.