Wednesday 13 December 2017

Penny slowly dropping that austerity on its own won't work

Spain's Prime Minister Mariano Rajoy
Spain's Prime Minister Mariano Rajoy
Stephen Kinsella

Stephen Kinsella

Europe's leaders are in danger of copping on that austerity alone doesn't work. Spain's Prime Minister Mariano Rajoy has outlined a series of tax cuts, mostly to corporate tax, and a €6.3bn stimulus package, almost half of which will be paid by the private sector.

Italy's Matteo Renzi has argued tirelessly for a relaxation of the rules governing spending at the national level while giving a tax cut to low-income earners of €1,000 a year. Noises are now being made across Europe that a low growth, low inflation, high unemployment situation cannot be allowed to persist.

In Frankfurt the ECB is getting ready to buy up assets left, right and centre in order to push cash into the system to stimulate inflation. The threat of deflation is real now. When I wrote about it a few weeks ago, it was only a possibility and mooted as such. Not so now. If the ECB moves towards a negative interest rate and asset-buying programme, the ECB's asset buying programme should do a few things.

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