06 May 2010

When financial markets force too much austerity

Paul De Grauwe

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This Commentary warns that a self-defeating deflationary dynamics threatens to envelop the whole eurozone, in which the austerity being imposed by financial markets today makes recovery more difficult, thereby also making it harder to correct government deficits and debts. In the author’s view, this process can only be stopped by agreeing quickly on mutual financial support.
Paul De Grauwe is Professor of Economics at the Faculty of Business Economics at the University of Leuven and Senior Associate Research Fellow at CEPS.