Tuesday, May 28, 2013
Deficit-Defying Stimulus for EU?
Wall Street Journal
May 28, 2012
Europe is desperately searching for “growth-friendly fiscal consolidation,” the magical (and oxymoronic, some say) cocktail of spending cuts and tax hikes that doesn’t hurt economic growth. Now the European Commission is about to unveil a key ingredient in the recipe: deficit-resistant stimulus. Yes, we understand that may also sound oxymoronic, but hear it out.
At the center of the current debate is once again the Stability & Growth Pact, which calls for EU governments to keep their deficits under 3% of gross domestic product and forces them to spell out clearly how they will bring down existing spending overruns.
The pact’s shackles have always sat uncomfortably. Germany and France famously ignored it in the early 2000s, setting the stage for prolific spending by Greece that helped spark the euro-zone debt crisis. The euro zone has spent countless hours since Greece sought its first bailout trying to make the pact less vulnerable to political interference.
But along with the broader backlash against austerity, the 3%-rule has again come under fire. The commission has already moved to give some governments more time to cut their deficits because of a deeper-than-expected recession and now looks set to loosen its screws further.
Posted by Yulie Foka-Kavalieraki at 2:59 PM