Monday, March 28, 2011

Europe needs debt relief, not decades of austerity

by Heather Stewart


March 28, 2011

From Donegal to the Algarve, to the streets of Athens, voters on Europe's "periphery", as economists dismissively call it, are slowly waking up to a sobering truth – they face years of austerity, yet wage cuts, job losses and crumbling public services will not extricate them from financial crisis. In fact, by driving their economies into an ever deeper slump, it may even make things worse. The pain could just bring more pain.

Paul Krugman, the US Nobel prize-winning economist, calls it "the austerity delusion". As Ed Miliband said of the coalition's austerity policies last week: "It's hurting, but it's not working."

The Irish would certainly agree with that – Dublin has been widely praised for its draconian spending cuts, but the latest official figures, released on Thursday, showed that the economy has now been in recession for three years. Domestic demand is 27% lower than during Ireland's Celtic Tiger heyday. Investment is down by 60%, exports are falling, and, as any cash-strapped homeowner could tell you, when your income shrinks, it gets harder to service your debts.


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