Mark Blyth: End Austerity Now:
Cynics recall that a European recovery was supposed to take hold as early as the fourth quarter of 2010, and that every International Monetary Fund projection since then has predicted recovery “by the end of the year.” Instead, GDP has collapsed, with the Spanish and Italian economies expected to contract by close to 2% this year. Portugal’s economy is set to shrink by more than 2%, and Greece’s output will fall by more than 4%. Moreover, unemployment in the eurozone has skyrocketed to an average rate of roughly 12%…. More significant, over the last year, the public debt/GDP ratio rose by seven percentage points in Italy, 11 in Ireland, and 15 in Portugal and Spain. If the sine qua non of recovery via austerity is the stabilization and reduction of debt, the cynics’ case appears to have been made…. The problem with austerity in the eurozone is… policymakers are attempting to address a sovereign-debt crisis, though the real problem is a banking crisis…. Eurozone leaders must recognize that spending cuts will do nothing to stabilize the balance sheets of core-country banks that are over-exposed to peripheral countries’ sovereign debt. Until Europe rejects austerity in favor of a growth-oriented approach, all signs of recovery will prove illusory.