Friday, November 12, 2010

Budget Cuts Not Behind Slowing Growth In Europe

Euro area economic growth slowed from 1% to 0.4% on a quarterly basis, something which is blamed by some on budget cuts.

Yet quarterly growth in Latvia which has applied the toughest cuts in Europe held firm at 0.8%, with the annual change turning positive (2.4%) for the first time since the crisis started.

The real story is that the high quarterly growth in Germany in particular during the second quarter was just a temporary spike. Fiscal austerity has only lowered growth to the extent they involved marginal tax rate increases and/or provoced disrupting strikes.