Larry Summers Makes The Economic Case Against Austerity In Europe

Larry Summers explains the consequences of the focus on sovereign debt reduction in the eurozone.  It will not encourage bond investors to purchase sovereign bonds at higher prices because they understand that the ability to service the debt is dependent upon tax receipts.  They also know that spending less and saving more does not increase tax receipts. He argues that the eurozone needs a growth policy rather than a debt reduction policy. The implication is that the creditors will be better off if growth enables the debtors to service their debt.  A growth policy in the eurozone will require the surplus nations to stimulate growth, so that aggregate demand in the eurozone expands. Current policy in the eurozone is a recipe for recession and deeper problems.