Saturday, January 14, 2012

Krugman: Even S&P Recognizes the Folly of Austerity

In my previous post, I noted that Europe might muddle through with a policy predicated on austerity, which is not first-best or even second-best. Apparently S&P recognizes this, as Paul Krugman points out:

We (S&P) also believe that the agreement [the latest euro rescue plan] is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU’s core and the so-called “periphery”. As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.


Bernard said...

Feedjit have got their geography wrong. I am in Gaborone, not Maun, though Maun is very nice being the gateway to the Okavango delta...

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