Breaking the eurozone's self-defeating cycle of austerity

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While a beleaguered IMF and ECB try to hold the line, voters all over Europe are rebelling against their punitive fiscal orthodoxy

It has become a ritual: every six months, I debate the IMF at their annual meetings, the last two times represented by their deputy director for Europe. It takes place in the same room of that giant greenhouse-looking World Bank building on 19th Street in Washington, DC. And each time, the IMF's defense of its policies in the eurozone does not get any stronger.

Maybe, it's because most economists at the IMF don't really believe in what they are doing. The fund is, after all, the subordinate partner of the so-called "troika" – with the European Commission and the European Central Bank (ECB) – calling the shots. And most fund economists know their basic national income accounting: fiscal tightening is going to make these economies worse, as it has been doing. Those that have tightened their budgets the most – for example, Greece and Ireland – have shrunk the most, as would be predicted.

The Spanish government, which on Friday announced a 52% unemployment rate among its youth, has projected that the planned budget tightening for this year would by itself take 2.6 percentage points off of 2012 growth. With the eurozone and now even the UK in recession, with the German economy shrinking and France barely growing, the rebellion against the self-inflicted harm of austerity is spreading to the richer northern countries.

Read the whole story: Guardian