From Financial Sense / By Lance Roberts / April 24, 2012
It seems that political leaders in Europe, particularly Germany, may be giving up on the idea of austerity measures to reign in the excessive debt levels that have run amok in these countries, as well as in the U.S., over the last 30 years. Angela Merkel, Germany’s Chancellor, has been a driving force on the insistence of tough debt cutting measures and fiscal targets in exchange for bailout funds since the beginning of the Greek crisis. In a NY Times article published yesterday Jordi Vaquer i Fanes, a political scientist and director of the Barcelona Center for International Affairs in Spain stated: “The formula is not working, and everyone is now talking about whether austerity is the only solution. Does this mean that Merkel has lost completely? No. But it does mean that the very nature of the debate about the Euro-zone crisis is changing.”
What is both disturbing and disappointing are the lack of foresight that is being exhibited by both the media and the leaders of not only Europe but the U.S. as well. It should not be a surprise to anyone that the austerity regimen, agreed to last month as a long term solution to Europe’s sovereign debt crisis, is going to cause economic growth to slow. We have been very vocal about this point in past missives. Austerity measures cannot be imposed when an economy is saddled by rising debt costs and high unemployment. Austerity, by its very nature, will reduce economic output and therefore requires a strongly growing economy to offset the drag of the reduction of government spending.
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