Tuesday, March 23, 2010

"Six years of fiscal austerity, says OECD"

From FT Alphaville:

France, Japan, the US, the UK and peripheral eurozone countries will face six years of austerity starting in 2012, just to get their public finances back into some sort of order. So says the OECD, the Paris-based international organisation in a highly sensible paper compiled for the G20 countries.

The most interesting aspect of the paper is its recommendations on the speed of deficit reduction. It calls for consolidation plans, “contingent on the recovery”. That, of course, is easy to say, and less easy to do. But it has a good stab:

“Countries with weak demand growth and policy interest rates at close to zero should consolidate at a slower pace, whereas countries with high growth and greater scope for further relaxation of monetary policy, if needed, should improve budgets more quickly. Likewise, countries with low budget deficits and public indebtedness can afford to consolidate more gradually than countries with high deficits and/or high debt, especially if financial markets are not confident about their authorities’ commitment to consolidation”

And the danger of spillovers from one country to another are highlighted....MORE