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Europe: facing a "lost decade"? « Previous | |Next »
January 3, 2012

Across-the-board austerity will weigh heavily on the economic growth in the eurozone and beyond. The politicians' contorted efforts to placate the financial markets results in austerity being piled on austerity. Demand is depressed, economies contract and this makes it harder, not easier for governments to repay their debts Europe's future is one of a prolonged period of stagnation and deflation.

Even if Europe's financial system is stabilised and the eurozone holds together the fragile eurozone banks are likely to cut back lending to Europe's households and businesses.

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Britain's path path towards isolation means that it can longer to be influential in Europe and balance the power of France and Germany. Britain’s self-exclusion has weakened the position of many of the smaller member-states of the EU: when EU institutions weaken, they are more likely to be pushed around by France and Germany. France and Germany, the dominant countries in the fiscal compact, are hostile to the European Commission and favour a more ‘inter-governmental’ Europe.

Fiscal austerity alone will not solve the crisis and it has become part of the crisis. What the eurozone needs is economic growth, and at a time when the European economy faces an acute risk of depression, the eurozone still has no economic growth strategy.

| Posted by Gary Sauer-Thompson at 3:45 PM |