Austerity is Failing

      With the news yesterday that Spain contracted by .3% for the second consecutive quarter-ie is now back in recession-is it any wonder that there is some movement in Europe to reconsider the idea that austerity can in any way lead to growth?

       Spain now joins a long list of euro countries back in recession with 8 of the 17 countries now officially back in recession; in addition non euro countries are also now in a double dip-Britain, Denmark and the Czech Republic.

       Not only is austerity terrible for growth it can also be quite hazardous to the health of European politicians. Sarkiozy is favored to lose to Socialist challenger Hollande in a few weeks which would make him the first French President in over two decades that failed to win a second term. In Greece austerity finished  Papendrou and Berlusconi in Italy. Both chose to step down rather than push any further austerity measures.

      We have the recent defeat in Holland where the pro austerity President was driven from office. You also to be sure see signs that this may lead to not just political turmoil-there's already been plenty of that, but of some far Right and Left candidates having a good showing. In Greece you see both a Far Right candidate and a Communist candidate who between them have about 22% of the vote.

       There is now some talk about the need for growth policies-even Germany is reluctantly admitting its importance though still want to insist that austerity restores confidence which will somehow turn things around. This makes me think of Joseph Stiglitz who argued in his book The Roaring Nineties that in many ways Clinton's success in erasing the deficit gives the wrong lesson-that budget austerity causes growth.

     There is still the idea that if the euro countries really did leave austerity the bond markets will make them pay. Could it be any worse than how much they're paying for austerity? Hard to see ow it gets worse.