by Richard Barley
Wall Street Journal
April 26, 2012
When it comes to austerity, investors are a fickle bunch. Too much austerity and they worry the cure will kill the patient; too little and they fret governments have abandoned fiscal discipline. Recent weeks have seen both concerns arise simultaneously.
In Spain, yields rose despite promises to lop 3.2 percentage points off the budget deficit. Meanwhile France's election and the collapse of the Dutch government caused yields to rise on fears austerity was being relaxed. Are investors being irrational?
Perhaps not. The problem lies in trying to balance what is right for each individual country against the need for clear rules to restore euro-zone credibility. The European Commission, European Central Bank and core countries such as Germany have insisted on a one-size-fits-all policy where budget deficits must hit 3% of gross domestic product in 2013.