Europe Loosens Austerity Rules As Recession Deepens

Europe’s recession is already the longest in its modern history, and now it’s going to get deeper. On Wednesday, the Organization for Economic Cooperation and Development (OECD) revised its eurozone growth forecast for the year from a slight contraction of 0.1 percent to a 0.6 percent slide.

The OECD’s advice to the Eurozone? Avoid “reform fatigue” and continue pursuing fiscal austerity, CNN Money reports, while waiting for the European Central Bank to enact mass asset-buying along the lines of the Federal Reserve’s ongoing “quantitative easing” program in the U.S. But with nearly a quarter of Europe’s under-25 population out of work, and even the usually-stalwart German economy producing a jump in unemployment that was four times what experts expected for May, the rigidity is starting to fade from the European Commission’s austerity demands.

French, Spanish, Italian, and Dutch leaders are being given a reprieve from some of the austerity rules imposed by the eurozone’s central government that have prevented them from pushing more money into their economies in hopes of lowering youth unemployment and reigniting the broader economy.

Meanwhile, American policymakers have moved in the opposite direction. Congress and the White House have enacted trillions of dollars worth of austerity measures despite the demonstrable success of fiscal stimulus early in President Obama’s term. Economists say the U.S. unemployment rate would be fully one percentage point lower without the past two years of austerity. Even with deficits evaporating, Congress seems preoccupied with further spending cuts. And while the Federal Reserve’s monetary stimulus has offset much of the harm of that austerity, the Fed is signaling it will pull back soon, in part because Chairman Ben Bernanke isn’t interested in letting employment concerns drive Fed policy.