Many European countries are pursuing “excessive austerity,” risking a marked slowdown in economic growth, Nobel Prize-winning economist Joseph Stiglitz said.
“There’s this disastrous policy that even in the countries that don’t need to have austerity,” such as the U.K., they “are going for much more excessive austerity than they need,” he said at an investor conference in Moscow today. “We are already seeing around Europe the consequences of this austerity. The clear implication is that growth will be slower.”
European governments are stepping up efforts to narrow budget deficits after the region’s sovereign-debt crisis threatened to trigger defaults and undermine the euro. Leaders are considering boosting the 750 billion-euro ($1 trillion) rescue fund and adopting more stringent deficit rules to avoid the future turmoil after rescues of Greece and Ireland.
While both those nations had “no choice” but to tighten fiscal policy, measures adopted by some other countries such as the U.K. aren’t justified, Stiglitz said. Britain, where the economy contracted in the fourth quarter, is already seeing the fallout, he said.
Prime Minister David Cameron’s government is implementing the largest fiscal squeeze since World War II to tackle the U.K.’s record deficit. The economy unexpectedly shrank 0.5 percent in the final three months of 2010 as the coldest December in a century hampered services and retailing, a report showed on Jan. 25.
“Whether it goes to double dip isn’t clear, but that it will be slower is very clear,” Stiglitz said. “We’ve gone through this experiment over and over again of what will be the consequences of austerity, and it is a marked economic slowdown.”
Global inflation pressures from soaring food and commodity prices will also weigh on the economic recovery, according to Stiglitz. European economies will suffer as governments curb spending to narrow budget deficits and central banks rush to raise interest rates, he said.
“In Europe it’s going to play out worse because the budget-deficits problems are worse and the European Central Bank is much more committed to fighting inflation,” Stiglitz said. “The U.S. is a little bit more balanced in monetary policy and so they will be more willing to tolerate inflation.”
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