The Euro-crisis and economic growth

Beyond the immediate crises, centring on the inability of countries such as Greece, Ireland and Portugal to finance their public debt without EU/IMF support, at the heart of the Euro crisis lies the increasing divergence in economic performance between the core and the periphery, aggravated by current austerity programmes, especially in those countries with long-standing structural reform deficits. For example, the Commission’s Spring Forecast shows that the worst growth performance forecast in 2011 and 2012 is for Greece and Portugal.

The lack of economic progress in these countries threatens the success of the fiscal sustainability programmes. Unless these countries manage a return to growth, tax revenues will remain low and spending on automatic stabilisers relatively high, implying high deficits even with significant reforms. In addition, low growth (or even contraction) implies a much more difficult task to reduce the debt to GDP ratio.

ISPI: Commentary: The Euro-crisis and economic growth [PDF] http://www.ispionline.it/sites/default/files/pubblicazioni/commentary_zuleeg_01.09.2011_0.pdf

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