European governments are facing a clamour of calls to ditch austerity measures and start spending.
The most rational of these calls are from those who wish to find a middle ground, understanding that is very hard to nurture economic growth without some form of stimulus.
It is very rare for an economy to simply change gear without a significant catalyst – be it the growth in a particular industry, political reform, or a significant innovation which a country is in a unique position to capitalise on. My own perspective is that, outside of pure chance, growth tends to follow intelligent strategic investment.
A fascinating comment piece in the Financial Times by Professors Marcus Miller and Robert Skidelsky of Warwick University questions the validity of austerity, and presents a very clear and concise case for the adoption of pragmatic growth measures as a solution to the current economic woes.
Devising ways to reduce debt without austerity is imperative. Assessing the current turmoil and drawing parallels with the 1930’s, they argue that sovereign debts must be managed in ways that do not destroy the economy or the political centre ground – as is the threat from a rigid austerity programme
According to Miller and Skidelsky, growth will only be achieved through increased project spending, restructuring of debts and shifting debt onto future generations. This basic foundation will create breathing space in which countries can climb out of the current morass.
I certainly appreciate that it is important that austerity measures be adopted at the early stages of a debt crisis - in the most recent crisis, it was important to show bond markets that tackling the debt mountain was a priority. With these initial measures in place (and as growth slides backwards and tax receipts fall), the question should be not if, but when, we begin adopting growth measures in earnest.