Europe’s depressing dog days of summer – Globe Asia – September 2014

In this article in Globe Asia, Professor Hanke applies his contrarian analysis to Europe's economic ills. He points out that it is fiscal deficits that are the underlying cause of Europe’s economic problems and not its loose monetary policies. The following is a brief extract from his analysis: 

“Money and credit fuel economies. Without enough fuel, economies stall. Moreover, money dominates fiscal policy. If monetary policy is loose and fiscal policy is tight, the economy will grow. Fiscal austerity won’t throw things into reverse.

For example, when Bill Clinton entered the White House in 1993, the structural fiscal deficit was 5.3% of potential GDP. In the ensuing eight years, President Clinton squeezed out the fiscal deficits. When he left office in 2001, the government’s accounts registered a structural surplus of 1.5%. Those Clinton years were marked by tight fiscal and loose monetary policies. The result was rapid economic growth. The reverse occurred in Japan during the 1990s.”

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