Home > XE Currency Blog > France and Italy Align Themselves Against Germany Regarding Fiscal Issues

AD

XE Currency Blog

Topics7232 Posts7277
By HaleStewart October 6, 2014 8:52 am
  • XE Contributor
HaleStewart's picture
HaleStewart Posts: 792
France and Italy Align Themselves Against Germany Regarding Fiscal Issues

     In January 2010 a paper titled “Growth in a Time of Debt” stated that a debt/GDP ratio over 90% was detrimental to long-term economic growth.  Although the paper’s basic argument was questioned when released, the “90%” line in the sand become a cornerstone of economic policy-making during the post-Lehman recovery.  However, about a year ago, two researchers discovered serious coding problems in the Excel Spreadsheet on which the study was based.  This was dubbed “Spreadsheet-gate.”  The conclusions were furthered by a 2012 IMF paper titled, “Fiscal Multipliers and the State of the Economy” which concluded the effects of government spending were more pronounced during downturns than expansions.

     But despite the growing evidence that austerity does not work, it is still a core principle of EU economic policy making, leading to an overall decline in EU-level fiscal expenditures over the past three years:

     But now both France and Italy are offering stronger voices to the German call for austerity.  Italy’s prime minister has stated that the intra-EU relationship is not one of “teachers and students” but instead a pairing of equals.  And now France has called for a delay in meeting its spending targets.  Neither of these two countries are calling for a mammoth increase in fiscal spending.  Instead, both are trying to work within current EU policy guidelines.  Only time will tell if they are successful.  But it is becoming clear that a coalition is emerging that is challenging German hegemony over macro-level EU policy.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer

 

 

 

Paste link in email or IM