17 August 2011

Double-dip recession on the horizon

Euro area and EU27 both experienced near zero growth for the second quarter (0.2%). This will put governments in a very difficult situation, stuck between between Scylla (debt crisis) and Charybdis (economic crisis). 

Given the repercussion of the latter on the former, it would ill advised to insist on expenditure control. With a falling GDP it is nearly impossible to reduce debt as % of GDP, both for 'mechanical' (Debt is weighted by GDP) and dynamic reasons (falling growth reduces revenues and increases expenditures)

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