Austerity Not Working in Italy Either


A few days ago it was Spain. Now it’s Italy. Prime Minister Mario Monti announced a new 3-year economic plan today that — surprise! — shows that austerity has been bad for Italy’s economy:

The plan, which must be ratified by Parliament and sent to the European Commission in Brussels by the end of the month, forecasts that Italy’s gross domestic product will contract by 1.2% this year, almost three times the forecast in December.

….Yet, Italy’s fiscal policy is tightening, Deputy Economy Minister Vittorio Grilli said. Rome will post a budget surplus of 0.6% of GDP next year in structural, cyclically adjusted terms….The International Monetary Fund reached a similar conclusion, saying Tuesday that Italy won’t balance its budget until 2017, but that next year it will achieve a structural balance—suggesting Italy wouldn’t have a fiscal shortfall if the economy were performing at its full potential.

For those who argue that austerity is choking growth, the underlying rigor isn’t something to boast about.

No, it’s nothing to boast about. After all, lots of countries would have balanced budgets, or something close, if their economies were cranking along at full potential. But that’s the whole point: austerity economics is stifling growth, which makes it hard to balance the actual, real-life budget. If the answer to that is even further austerity, you can expect even lower growth.

But austerity is the plan anyway. Hang on tight.

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