Economists fear that, due to market pressures, some heavily indebted European nations may adopt excessive austerity measures on the back of aid packages intended to help the countries recover from the global recession. Olivier Blanchard, the chief economist for the International Monetary Fund, said “there is indeed a risk that, under market pressure, some countries overdo austerity,” and furthermore that, “That would be a mistake.”
The austerity measures adopted by Greece on the back of the joint Euro-IMF bailout, due to the severity of Greece’s debt problems, have been purported to be quite severe; however, Blanchard believes that other indebted European nations, such as Italy and Spain, should not need to impose such severe measures.
“Markets tend to lump a series of countries in the same basket. In fact, other European countries don’t need to take the same draconian measures as Greece to reduce their budget deficits,” said Blanchard. “They are more credible to start with, with less debt, and they can afford a more gradual adjustment to limit the negative impact of consolidation on short-term growth.” One interesting question could be asked on the back of this: was it not the IMF that imposed such severe austerity measures on Greece in the first place?
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