Roubini: Europe Needs Growth to Prevent a Collapse of the Euro

Der Spiegel:  NYU economist Nuriel Roubini says Europe should be more like the U.S. when it comes to current economic policy.  Europe needs growth to prevent a disorderly collapse of the euro area. The stringent cost-cutting measures that the EU and the International Monetary Fund are imposing on countries such as Greece and Ireland are, in principle, the right way to get a handle on their debt. However, these measures also strangle an economy. Higher taxes mean people have less money to spend. If the government cuts spending it cannot make investments to stimulate growth. This creates huge difficulties for the governments concerned: If people cannot see the light at the end of the tunnel they will start to withdraw their support for reforms. In the interests of Europe as a whole, Germany should do all it can to bolster growth — at home and in Europe. Germany should, therefore, postpone its austerity strategy.

The cost-cutting measures, the ECB’s tight monetary policy, the current high value of the euro — that’s all fine for Germany and the heart of the EU. But what’s good for Germany is by no measure good for the countries on the periphery of the EU. The economic output of Greece, Ireland and Spain is shrinking, and there is hardly any growth in Portugal and Italy. To get these countries back on track for recovery the ECB should do what the Fed is doing and increase the money in circulation to stimulate growth.  Read more at Der Spiegel…..