Keynesian Fantasy In Europe

Euro Won’t Be Choked by Austerity Drive, EU Says (Update3)

By James G. Neuger and Stephanie Bodoni

May 18 (Bloomberg) -- European finance ministers said Greece’s debt crisis won’t unleash a continent-wide austerity drive with the potential to tip the economy back into a recession and further undercut the euro.

Only high-deficit countries including Spain and Portugal will be ordered to make additional deficit cuts, while budget policies will remain untouched in better-off nations such as Germany and Finland.

“Not everyone will accelerate consolidation in a very uniform way,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters early today in Brussels after a meeting of ministers from the 16 euro countries. “That would lead to a very restrictive fiscal stance for the euro area as a whole, which would risk depressing economic growth.”

Concern that tight fiscal policies would choke the economy contributed to the euro’s 3.4 percent drop against the dollar in the week since euro leaders offered a 750 billion-euro ($925 billion) rescue package for debt-burdened governments.

The meeting resumed at 9 a.m. with all 27 European Union finance ministers set to adopt a draft law to tighten hedge-fund regulations that has drawn objections from the U.K. and the U.S.

The euro fell today to its lowest level against the dollar since April 2006, slipping as much as 0.7 percent to $1.2315. It was unchanged at $1.2395 as of 8:20 a.m. in London.


More soon to be unsuccessful planning from the Eurocrats in Europe.

The bond market will decide how much austerity will be required of all countries. My suspicion is that there will considerable budget cuts in the near future.