An over-reliance on slimming government budgets is feeding the euro zone’s recession, European Union Labor Commissioner Laszlo Andor warned in an interview. “We need a smarter fiscal consolidation than before, which means that the wrongly calibrated fiscal consolidation measures probably contributed to the deceleration of growth and this second dip,” the EU Commissioner for Employment, Social Affairs and Inclusion said after meetings with the Obama administration, International Monetary Fund and World Bank officials this week. Although the job of labor commissioner isn’t one of the heavyweight roles within the commission, Andor’s comments are one of the first times a top European Union official has publicly suggested that the broad focus on austerity has been harmful to the European economy.
In the U.S. there has been a debate between the political hacks in the Republican Party who think President Obama has worsened our economic performance by excessive fiscal stimulus and the realists who argue that we did not have sufficient fiscal stimulus. Mr. Andor seems to be of a different mind:
The commissioner said he spent much of his time in Washington studying how the U.S. was able to spur demand and cut persistently high unemployment levels. The U.S. government and the Federal Reserve have greater flexibility than the E.U. or the European Central Bank, a lesson he said that has application in Europe.
It only shows how incredibly awful European aggregate demand policy has been when our anemic efforts to restore full employment are seen as a guide to their macroeconomic policies!