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Ben Chu: Germany sees austerity as the road to recovery

 

Ben Chu
Tuesday 15 November 2011 20:00 EST
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These meagre growth figures are the calm before the storm for the eurozone. All the forward indicators of economic activity are pointing downwards. The uncertainty generated by the eurozone sovereign debt crisis and simultaneous fiscal retrenchment across the Continent are taking a toll. A slowdown is certain. And most economists anticipate a new recession.

Click HERE to view graphic

Italy looks particularly vulnerable. The latest surveys by Markit indicate a massive fall in Italian GDP in the fourth quarter of 2011. Such a contraction will make the job faced by the new Prime Minister, Mario Monti, all the more difficult. The structural reforms that Mr Monti has promised, though necessary for Italy's long-term economic health, are likely to exacerbate the country's downturn in the short term. Liberating labour markets will put many Italians out of work. Fear of unemployment will crimp consumer spending and demand is likely to collapse.

Yet politicians in Berlin, who are most vociferous in demanding cuts in Italy, don't recognise this risk. For them, the quickest road to recovery is immediate austerity. For the sake of Italy, and indeed the future of the eurozone, we had better hope they are right.

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