European austerity returns

At the end of last week the IMF issued a warning that the world is heading for a weaker than predicted period of economic growth:

The International Monetary Fund will reduce its estimate for global growth this year on weakness in investment, jobs and manufacturing in Europe, the U.S., Brazil, India and China, Managing Director Christine Lagarde said.
“The global growth outlook will be somewhat less than we anticipated just three months ago,” Lagarde said in a speech in Tokyo today. “And even that lower projection will depend on the right policy actions being taken.” The new outlook will be announced in 10 days, after an April estimate of 3.5 percent, she said.

It is very difficult to determine exactly what the IMF considers “the right policy action”.  The IMF were the main instigators of “expansionary fiscal contraction” in the European periphery which, even by their own admission, has failed. Last year I noted that the new IMF chief made some statements that appeared to set a new direction for the organisation and more recently she has been talking about the need for a “pro-growth” agenda for Europe. While that maybe the case, her organisation is still endorsing programs that deflate economies by lowering industrial production and increasing unemployment and at the same time  fail to deliver on promised growth targets. It is therefore unclear, at least to me, exactly what the IMF’s chief is actually endorsing.
Either way, under the current treaties, Europe demands tighter budgets from most of its nations and the next stage of the fiscal compact includes the enshrinement of a ‘debt brake’ into national budgetary legislation. Under these arrangements many European nations have no choice but to slim down their national spending and that is what we continue to see as the new financial year begins.

Read more: http://www.macrobusiness.com.au/2012/07/european-austerity-returns/