A ‘delicate balanced’… rhetoric

You should read this. Sad, really sad.


Fiscal policy in Europe: Searching for the right balance


Well, actually, it isn’t sad. We should need to take seriously these guys from the European Commission to say it is sad but, you know what? They don’t fool us any more.


Krugman has something to tell them, too: “it’s quite a spectacle to see officials patting themselves on the back over an economic strategy that, let’s not forget, has tipped Europe back into recession, and keeps pushing overall euro area unemployment to new highs.” I can only read one sentence that could be interpreted as ‘something is changing in the minds of these guys’: “For vulnerable countries of the Eurozone that face a large external sustainability gap, external growth is the only sustainable way to grow out of their debts. The improved current balances in the periphery thus have to be matched by rebalancing trends also in Eurozone countries that feature large current account surpluses. Policies and reforms supporting demand in these countries have a role to play. Since fiscal consolidation-cum-deflation is likely to be self-defeating, re-establishing competitiveness across the area implies higher than average inflation in stronger countries, provided price stability in the Eurozone and inflation expectations remain well anchored.”


This is exactly what many economists (for instance, me: Peon & Rey, 2013) recommend. And this would be good (the only, but good) news if it weren’t for this they say just below: In Germany, the fiscal stance is now broadly neutral, hence consistent with the call for a differentiated fiscal stance according to the budgetary space.” Oh dear, this is what they call boosting demand?? Now I know what their ‘delicate balance’ self-justifying piece means: just rhetoric.

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