Ford School Policy Points

April 27, 2012

Marina v.N. Whitman: Austerity not enough for EU nations

Marina v.N. Whitman is a professor at the Ford School and the Ross School of Business whose expertise is in international trade and investment. She has served as a VP and chief economist at GM and as member of the Council of Economic Advisers.

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Marina v.N. Whitman says:

When you read about the mess in Europe, what you mainly read about is one, will the Euro, the common currency survive, and two, will some country-- probably Greece-- default on its debts and thereby throw financial markets into a turmoil? But the basic question is more fundamental. That is, even if all of Greece's past debt were wiped out by a good fairy and even if it had its own currency and could devalue, it would still have some serious problems. On the one hand, Greece and a lot of the other European countries are in recession. In Greece, the suicide rate is spiking. In Spain the unemployment rate is 25%. They can't just have austerity so also have to find a way to grow and get rid of their deficits at the same time which means not cutting way back now but making a credible commitment to cut back over a longer term future. There are things they could do. They could raise pension ages. They could reduce the generosity of pensions. They could loosen up their labor markets. They could actually demand that their citizens pay their taxes which they don't. But at the moment, there's all this focus on the short term austerity and the Germans keep saying more, more, more austerity and the French keep saying but we've also got to have growth, but they're not really talking about the things they could do to get both at once.

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