Wednesday, June 02, 2010

Who Is Afraid Of Sustained Decline In Public Expenditure?

Are economists at Societe Generale suggesting that there is no reason to be afraid of a sustained decline in public expenditure? Nice charts from latest Global Economic Outlook, click on charts to enlarge, courtesy of Societe Generale.

Though, the economists at Societe Generale concluded today at the same time:

The euro area debt crisis has raised a dilemma for policymakers in many of the advanced economies. If all tighten fiscal policy simultaneously, the multiplier effects are such that a return to global recession is guaranteed. If those economies with relatively stronger - but still weak in absolute terms – public finances wait, the risk is that markets will lose patience with them too. In the euro area, this dilemma is particularly acute. All the more so as market attention is now turning away from the short-term issue of funding to the medium-term issue of solvency. This latter issue is set to keep intra-euro area spreads at high levels and act as a structural drag on the euro.

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