An Explanation of Why Austerity Is Needed In Europe

This article provides a detailed analysis of the eurozone crisis and the plans underway to deal with Greece, in particular, and the need for structural reforms in many eurozone countries which are needed to stimulate economic growth. The structural reforms are made politically possible by the imposition of austerity plans in return for needed financial support to peripheral economies. Affected governments have leeway to manage fiscal policy to deal with their particular needs without blindly adhering to debt to GDP goals. In other words, austerity is not being imposed to punish the sinners, and nobody believes in expansionary austerity. Austerity is the means by which needed structural reforms can be implemented. Countries, like the US, which has a business cycle problem, and little need for structural reform, should use fiscal stimulus to deal with the business cycle.