May 11, 2012

Is Austerity to Blame for Europe's Economic Woes?

Veronique de Rugy

Senior Research Fellow

All sorts of experts are charging that financial austerity measures are killing the great economies of Europe. But the critics of austerity have got it all wrong, says Veronique de Rugy for Reason TV. For starters, many European countries haven't cut spending at all and, among the ones that have, most have made relatively minor trims while also hiking taxes. That's known as "the balanced approach," notes de Rugy, and it almost never works to reduce debt-to-GDP ratios or get economies moving again. Yet critics of cutting government spending in a weak economy ignore academic research showing that significant spending cuts, structural reforms to entitlements, and loosening labor regulations are proven ways to reduce debt loads and get countries moving again.