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Is austerity the best policy?

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Is austerity the best policy?


Martin from Brussels put this question to Marc Touati, economist and author of the book, “When the eurozone will explode”: “Are austerity policies a real necessity, do they have a real use in the EU since they seem to contradict the liberal principles of growth and consumption. Are they really useful at this time?”

Marc Touati: “You’re absolutely right. Austerity does not make economic sense. Besides the problem is that we often confuse austerity and fiscal consolidation. What we need today, whether in France or in most European countries, is to actually lower public expenditure that does not create growth, such as operating expenditures which in France have been rising by 10 billion euros a year for the last 10 years.

‘But if on the other hand, if we raise taxes, well you’re right, this tax increase will break what growth we have left. And if there is no growth, there is more unemployment, more deficits and therefore the debt will last longer. So the austerity will break not only growth, but in addition, it will aggravate the public debt crisis. Therefore, it is obviously not the right solution.

‘What to do today is obviously to lower some public spending, but at the same time, we must add let’s say “jam” to take the pill, that is to say restore stronger growth and how can we do this? Here are some ways.

‘First, have interest rates even lower, particularly at the European Central Bank, then have a weaker euro, and finally, generate a recovery policy across the euro area funded by the so-called Euro-bonds, that means European bonds in the euro area and not only country by country.”

‘As long as we don’t do that, unfortunately it’s very sad to say, but the crisis will continue and obviously the austerity policy will be counterproductive. To put it simply, it is useless to die cured and that’s what we are trying to impose on Greece today, but tomorrow in Portugal or Spain or Italy or even France.

‘So obviously, it is essential to get out of this first dogmatism – the austerity policy – and restore growth, which is the only way to overcome the crisis of public debt.”

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