WHY AUSTERITY WORKS AND FISCAL STIMULUS DOESN’T

Bloomberg. After five years of financial crisis, the European record is in: Northern Europe is sound, thanks to austerity, while southern Europe is hurting because of half-hearted austerity or, worse, fiscal stimulus. The predominant Keynesian thinking has been tested, and it has failed spectacularly.

A successful stabilization program must appear financially sustainable so that it can restore confidence among creditors, businesses and people. Usually, a sound stabilization program can revive economic growth within two or three years, as Latvia’s did. A few rules of thumb need to be followed. Latvia did them all; Greece not at all.

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