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What will the euro deal to do growth?

European leaders have agreed on austerity measures to prevent further economic turmoil. But the country's that are less well off may not be able to grow as much in the future.

Jeremy Hobson: French President Nicholas Sarkozy said this morning that the legal details of Friday's euro summit deal will be coming in the next two weeks. The deal aims to keep the euro together by allowing a central authority to enforce budget rules for individual countries.

Tim Leunig is chief economist with the London think-tank Centre Forum and he joins us now to discuss. Good morning.

Tim Leunig: Good morning.

Hobson: Well, are economists like you waking up across Europe this morning thinking the leaders of Europe are getting this euro crisis under control?

Leunig: We're seeing that they're doing their best, but I think it's far too early to say that they've got it under control.

Hobson: Now this treaty that was sort of figured out on Friday and last week was about austerity -- it's about cutting budgets, making sure that individual countries keep their finances in order. But I wonder what it means for growth in the future -- if these governments around Europe are going to have to stick to these limits, will they be able to grow their economies?

Leunig: Well, exactly. It's really not clear to me that you want to Greece, Italy, Spain, or even France today -- because your countries have signed up for austerity as far as we can see into the future. That's not a really very good prospect.

Hobson: What do they do about that?

Leunig: Well, I wouldn't have signed, had I been them; and I'm not sure this deal will actually stick. It might stick for a few months because people know there's a crisis, but I doubt it's going to stick for a few years.

Hobson: But could they have gotten past the immediate crisis without signing something like this?

Leunig: You could only have a single currency if the countries that do best agree to behave reasonably. Britain behaved reasonably on the gold standard in the 19th century, but Germany is not behaving reasonably now. Germany needs to re-float its economy, get money out there which will float not only its own economy, but the rest of Europe. If it doesn't do that, the euro is doomed -- sooner or later.

Hobson: Tim Leunig, chief economist at the London think-tank Centre Forum. Thanks for your time this morning.

Leunig: Thank you.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.
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