Europe shifts away from austerity, but that’s easier said than done
Jeremy Hobson: The head of the European Central Bank said today that economic growth has to be central to the plan to get Europe out of its debt crisis. And that’s where we’ll start with Adolfo Laurenti, deputy chief economist with Mesirow Financial.
He’s with us live from Chicago. Good morning.
Adolfo Laurenti: Good Morning.
Hobson: Well Adolfo it does appear as though economic growth as opposed to austerity is gaining popularity in Europe – and may gain even more popularity after this weekend’s elections in France in which a socialist may become the next president?
Laurenti: That seems to be a very real possibility, and a victory by Francois Hollande will be a seismic shift in the European political balance. He has very differnt views than the Germans on austerity. He actually does not believe in austerity; he doesn’t support cuts to the welfare system. He wants the government to do more to stimulate growth.
Hobson: If that were to happen, can Europe make that kind of a switch that easily? Can they just say, okay, forget the austerity let’s focus on growth?
Laurenti: I think it’s easier to say than to do. Even if you agree with the theory – and not everyone does – in practice it will be very difficult to find the resources to do it. Clearly you cannot cut spending nor increase taxes by definition, because you want to stimulate the economy. The only way you can find the money is to borrow more, which is extremely different for Europe because they already suffer by very very high levels of debt and deficits. So it seems to be a dangerous way to grow markets and investors may react very poorly to that choice.
Structural reforms may be a better way, but unfortunately structural reform takes time and the European patience seems to be really running out at this point.
Hobson: Adolfo Laurenti, deputy chief economist with Mesirow Financial, thanks so much.
Laurenti: Thank you.
As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.
Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.
Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.