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Global Economics Monthly Debt and Austerity in Europe: Who Will Pay for Growth? Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics
Advocates of austerity appear to be in retreat. The idea that economic growth drops precipitously after a government's debt reaches 90 percent—a much-cited reason for fiscal consolidation—has been discredited. Steep cuts in government spending aimed at reducing national debt are damaging growth prospects in both the United States and Europe, leading policymakers and academics alike to call for austerity measures to ease up until recoveries are more firmly entrenched. In the peripheral countries of Europe in particular, a vicious cycle of fiscal tightening resulting in lower economic growth, missed fiscal targets, and financing shortfalls—which in turn require more cuts—is becoming a major concern. Advocates of more government spending note that borrowing rates for the major industrial countries remain at extraordinarily low levels, hardly signaling an imminent crisis. Thus, the case for easing austerity seems compelling. Read the Full Monthly Report
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Looking Ahead: Kahn's take on the news on the horizon Will Central Banks Deliver?
The Bank of Japan has promised "shock and awe," while the European Central Bank (ECB) has cut rates and hinted at more. Upcoming monetary policy meetings need to deliver.
Is Slovenia Next?
A government bond issue in Slovenia was successful, but the European Union is stepping up pressure on the government to clean up its financial sector.
Fiscal Exit Strategy
The U.S. deficit has fallen sharply, pushing back the debt limit until September/October. Hopes are fading for an extension linked to corporate tax reform. Is there a plan B?
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From the Macro and Markets Blog European Banking Union: Small Steps Robert Kahn
We are seeing the outlines of a European banking union in recent discussions of common rules for resolving a failed bank. However, consensus has yet to be reached over the allocation of losses. Read More » G8 Economic Scorecard: No Runs, No Errors Robert Kahn
Regarding economic issues at the G8, leaders appear to have some consensus on common principles and first steps. If the absence of failure is a success, then the summit looks to have succeeded. Read More » No Break for Periphery Banks Robert Kahn Read More »
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