Expansionary Austerity Survives At The ECB

Mario Draghi is the head of the ECB, and he has been a proponent of the idea that fiscal consolidation can be expansionary.  Recent criticisms of research on the benefits of austerity has chastened him a bit.  He now claims that spending cuts can be expansionary while tax increases may be counterproductive.  It turns out that spending cuts have been expansionary when they have been accompanied by monetary policies that are expansionary.  The ECB has lowered interest rates about as far as they can go in the eurozone.  It can't do much to counter the contractionary effect of fiscal consolidation in the eurozone,  but the head of the ECB believes that spending cuts are expansionary.