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Does “More Europe” Mean More Pro-Cyclical Fiscal Policy?

by Jon Hill
December 7, 2011

Europe's Pro-Cyclical Fiscal Policy

“It is time for a breakthrough to a new Europe,” German Chancellor Angela Merkel said on November 9th.  “That will mean more Europe, not less.” Merkel wants a stronger fiscal union with strict controls on eurozone national budgets.  Yet to date EU fiscal policy, such as it is, has meant ill-considered pro-cyclical spending programs – as shown in the graphic above.  Greece was and is a large recipient of EU transfers, yet those transfers collapsed by 1.3% of Gross Domestic Product (GDP) after it was forced to cut back on its contributions to EU-subsidized projects in an effort to slash government spending.  This additional fiscal squeeze hurt growth; Greek GDP fell an annual average of 3.5% in 2009 and 2010.

Reuters: Italy At Breaking Point; Fears Grow of Euro Zone Split
Mallaby: Franco-German Misstep on Eurozone
Steil: Why Draghi Can’t Be Bernanke
Video: Europe Update

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  • Posted by Riley

    Why dont all economists take a break and go away for a year come back and see what market forces have done to the nonsense they predict .. They are all aware what they do is nonsense.Quote ” Economists build models by subtracting from reality the characteristics they deem unessential to the economic situations they model. The result is a bare bones description consisting of what economists deem economically essential. Everything that is discarded (not taken into consideration in the model) is called an “externality.” So the models only work when the externalities that were in effect before the models are implemented do not change afterward. The realm of economic models can be likened to the realm of Platonic Ideas. Both realms are static and unchanging throughout all time. Unfortunately the real world constantly changes. Since externalities are excluded from all economic models and can be expected to change after any model is implemented, all economic models necessarily fail. Economists are frauds and economics amounts to nothing but an apologetics of greed.” John Kozy …. and so say all of us. Greenberg Centre for Fraud more likely giving your centre a title and making it sound important is a marketing scam.

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