Washington Post : Austerity is killing Europe : Spain, and other Euro Countries are taking the wrong medicine of Budget Cuts instead of practicing Stimulus for Jobs with Government Spending - This is like bleeding patients in the Middle Ages

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Slamming on the brakes too quickly and firmly will cause a big accident with your skidding car. You have to break slowly and by parts. People that work in car stunts know that very well.

"The International Monetary Fund, which has generally encouraged “fiscal consolidation” in euro-zone countries, has noted that budget cutting undermines growth and employment. The impact is even more pronounced if many countries are cutting at once and central bank policies are not geared toward growth — just the path Europe is following, according to the IMF."

The Washington Post
Is austerity killing Europe’s recovery?
By Howard Schneider
September 1, 2011


Is austerity killing Europe’s recovery ?


Some excerpts :

MADRID — After more than a year of aggressive budget cutting by European governments, an economic slowdown on the continent is confronting policymakers from Madrid to Frankfurt with an uncomfortable question: Have they been addressing the wrong problem?

The campaign to reduce government deficits has come in response to a European debt crisis that could endanger the global banking system. And the budget cutting has been coupled with a reluctance by the the European Central Bank to stimulate economic growth like the Federal Reserve has in the United States; the ECB has instead raised interest rates twice this year to contain inflation.

Those steps have sucked hundreds of billions of dollars out of a European economy that may be edging towards recession.

Such a downturn, by choking off government revenues and increasing the demand for public services, could put struggling countries such as Spain and Italy at risk of missing the very deficit-reduction targets that budget cuts and other austerity measures were meant to achieve.

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But the one-size-fits-all approach in Europe may ignore the trade-offs between government austerity and growth.

In Spain, for instance, where the parliament this week is voting to place constitutional limits on government deficits in a bid to reassure global investors, some analysts say the country is taking the wrong medicine. Spain’s debt level remains lower than even that of Germany, the continent’s strongest economy and one of the world’s benchmark credit risks. But Spain’s unemployment rate is more than double that of the United States, and some economists say the country needs a healthy dose of policies to restore growth, not constrain it.

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