EU’s austerity zeal risks killing the patient

Europe’s “no pain no gain” attitude to solving its sovereign crisis risks exacerbating the bloc’s problems,choking off the very growth needed to raise the money to pay down the debt.

The austerity zeal risks tipping the continent back into recession and a downward spiral of austerity as pitiful growth prospects undermine budgetary targets and ramp up debt burdens,meaning further austerity is required. With the crisis spreading like wildfire through the currency bloc’s core,pushing up borrowing costs to unsustainable levels,countries are relying more on blunt budget cuts,than time-consuming and difficult structural reforms,to get results. The upshot is ballooning dole queues,shuttered businesses and public services stretched to breaking point. On the streets of Athens and Dublin poverty has visibly increased with homeless people huddling in doorways. In Spain,emergency wards have been shut and in Italy,retailers are struggling to get by.

In the pre-euro days,currency devaluation was the quick-fire route to getting overblown economies back on track. What’s needed now is “internal devaluation” to get wages and domestic prices down. But if everyone is cutting back where will the demand come from?