Greece and the Limits of Anti-Austerity

CAMBRIDGE – Is austerity dead? At last month’s G-8 meeting at Camp David, the German-led austerity program for the eurozone’s troubled southern members ran up against substantial resistance. Likewise, France’s recent presidential election bolstered those who argue that Europe must grow its way out of its debt-heavy public sector, rather than aim for immediate fiscal orthodoxy. And there is no guarantee that Greece’s newly elected center-right New Democracy party, which favors honoring the country’s bailout terms, will be able to form a majority government.

The United States, by contrast, has pursued expansionary and growth-oriented macroeconomic policies since the 2007-2009 financial crisis, despite massive budget deficits. Thus far, judging from the modest recovery in the US versus non-recovery in Europe, American policy accommodation is performing better than European austerity.