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Fiscal Austerity and the Euro Crisis:
Where Will Demand Come From?

Jeronim Capaldo
GDAE Policy Brief 13-01
November 2013
Download the Policy Brief

Fiscal austerity has emerged from the debate on the euro crisis as the main strategy to restore growth and employment. Governments (and voters) considering further cuts to fiscal deficits should ask themselves an important question: where will demand come from?

Fiscal austerity promised to bring growth back to Europe by taking governments "out of the way." Unsurprisingly, it hasn't worked. Prescriptions of austerity typically fail to recognize the economy's resource constraint: demand only comes from households, businesses, government and the external sector. With households and businesses struggling with the recession, and trade expansion impossible for all countries at once, it is not clear what the expectation of growth is based on.

Download the Fiscal Austerity and the Euro Crisis: Where Will Demand Come From?

Read more on Modeling Policy Reform
Read more from GDAE’s Globalization and Sustainable Development Program

The Global Development and Environment Institute’s Globalization and Sustainable Development Program examines the economic, social and environmental impacts of economic integration in developing countries, with a particular emphasis on the WTO and NAFTA's lessons for trade and development policy. The goal of the program is to identify policies and international agreements that foster sustainable development.

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