Monday, April 16, 2012

No simple answer to Europe's growth puzzle

(Reuters) - Fierce debate is growing in Europe over whether austerity or growth offers the best strategy to overcome the continent's sovereign debt crisis. As if it were that simple.

As the euro zone hovers on the brink of its second recession in three years, the battle launched in academic journals, blogs and the financial press has spread to the hustings in France, Greece and soon in EU economic powerhouse Germany too.

"Europe can't cut and grow," Sony Kapoor, head of the Re-Define think-tank, and Peter Bofinger, a member of the German Council of Economic Advisers, said in an article before European Union leaders adopted a budget discipline pact last month.

"The EU needs a growth compact, not a fiscal one. Swift action on tax and jobs is the way out of the crisis."

The growth camp argues that synchronized austerity across Europe will only aggravate economic contraction, swell the ranks of the unemployed and make it harder for debt-laden countries to reduce their deficits and restore market confidence. Read More