The Eurozone got some more discouraging economic news today, with industrial output dropping by its largest amount in three years. Eurozone unemployment recently hit yet another record high of 11.8 percent, with 18.8 million out of work. Spain’s unemployment rate is nearly 27 percent.

But the Eurozone is going to keep right on going with its austerity program, according to its top economic official:

The worst of the euro zone debt crisis may be over, but governments must not let up on reforms or budget cuts if they want to put the turmoil firmly behind them, the EU’s top economic official said on Friday.

In a speech to diplomats and industry officials, EU Economic and Monetary Affairs Commissioner Olli Rehn called for prioritising investment, fighting youth unemployment, continued reduction of budget deficits and tighter economic integration of the 17-member single currency area.

“Our patient may be out of intensive care, but it will still take some time before she can be given a clean bill of health,” Rehn said. “That’s why any lapse into complacency would be unforgivable. We need to stay the reform course to revitalise the European economy,” he added. [...]

[L]ower deficits were still central to emerging from the three-year public debt crisis, Rehn said, even though their is increasing debate about the impact of austerity on growth.

Spain is the case study in how budget deficits have nothing to do with the current Eurozone crisis: Spain has the Eurozone’s highest rate of unemployment, yet had balanced budgets before 2008.

The International Monetary Fund recently admitted that it vastly underestimated the detrimental effect of austerity spending cuts, and is now recommending that countries dial back their spending reductions in order to prevent stifling of economic growth. But European nations are stubbornly charging ahead. The UK, in fact, is headed towards a triple-dip recession, as its government doubles down on austerity.

Unemployment in the Eurozone hit yet another record in November, clearing 11.8 percent, according to Eurostat. 18.8 million residents of the Eurozone are out of work, the most since the single currency was created in 1999. Across all of Europe, 26 million citizens are jobless.

As the Associated Press noted, “governments across Europe have introduced tough austerity measures, such as slashing spending and raising taxes. However, measures such as cutting wages and pensions hit the labor force in the pocket and reduce demand in the economy.” Austerity measures have also driven the U.K. to the brink of a triple-dip recession. And the U.S. is scheduled to enact an austerity package larger than that passed in many European countries, if spending cuts that are on the books actually take effect, as this chart shows:

The International Monetary Fund recently admitted that it vastly underestimated the detrimental effects austerity would have on world economies. Europe is providing a prime example of the consequences of that mistake.

The U.S. came out of its economic slump faster than Europe due, in part, to its embrace of stimulus over austerity. But recent budget deals have the potential to reverse those gains.

The International Monetary Fund (IMF) released research today suggesting that it had significantly underestimated the damage European austerity would do to EU growth rates. The paper, by top researcher Olivier Blanchard and staff economist Daniel Leigh, surveyed IMF forecasts released in 2010, when many European nations implemented significant austerity measures.

Most estimates assumed, roughly, that every 1 percent of GDP in spending cuts or tax hikes would lower a country’s GDP growth rate by .5 percent. But it turns out that the costs were closer to 1.5 percent — three times the IMF prediction:

Our forecast data come from the spring 2010 IMF World Economic Outlook (IMF, 2010c), which includes forecasts of growth and fiscal consolidation—measured by the change in the structural fiscal balance—for 26 European economies. We find that a 1 percentage point of GDP rise in the fiscal consolidation forecast for 2010-11 was associated with a real GDP loss during 2010-11 of about 1 percent, relative to forecast. Figure 1 illustrates this result using a scatter plot. A natural interpretation of this finding is that multipliers implicit in the forecasts were, on average, too low by about 1.

As the Wall Street Journal noted, the IMF wasn’t alone in this estimate: “The European Commission, the Organization for Economic Cooperation and Development and the Economist Intelligence Unit also appear to have made roughly the same blunder.” This comports with the Blanchard and Leigh’s finding that the cost really was closer to .5 percent in the past, with the exception of the 1930s, when it was roughly 1.6. Economists, as the Journal suggests, may simply have failed to differentiate between data from financial crises and other data.

This isn’t the first time high-level IMF officials have raised red flags about the effect of austerity on growth. Fund director Christine Lagarde has, in response to the eminent failure of European austerity as compared to American stimulus, suggested that European countries need to deprioritize debt reduction in favor of measures that actually boost economic growth.

The United States is poised to enact a significant austerity package in 2013, even by European standards, due to an increase in the payroll tax and the still-looming spending cuts that were part of the “fiscal cliff.”

Austerity policies meant to turn around the European economy and reduce the debts and deficits of countries like Italy, Portugal, Spain, and Greece continue to have the opposite effect. The continent’s economy shrank for the second consecutive quarter in the three months leading up to September, officially pushing the European economy back into recession. The 0.1 percent contraction marked the fourth consecutive quarter that the European economy either shrank or experienced no growth.

Protesters filled streets in Lisbon, Madrid, Rome, and Athens this week, as austerity policies in all four countries have driven up unemployment and led to social service cuts, while failing to address the economic crisis. The protests have taken a violent turn recently, with protesters setting fire to urban streets and riot police firing back on them. 140 were arrested in Spain, where the unemployment rate has jumped above 25 percent. The economies of other struggling countries also continue to decline:

Portuguese unemployment jumped to a record 15.8 percent while in Spain, one in four of the workforce is jobless.

Greece’s economic output shrank 7.2 percent on an annual basis in the third quarter as the debt-laden country staggers towards its sixth year of depression.

Close to 26 million people are unemployed in the European Union while governments cut spending.

A study recently found that rather than increasing growth and reducing debt, austerity was driving down economic growth and increasing debt levels. Others have shown that austerity has put 116 million Europeans at risk of falling into poverty.

The United States has fared better, largely because it embraced stimulative economic policies instead of rampant budget cutting. But the U.S. is now at risk of following a similar path, as the so-called “fiscal cliff” policies that will slash spending would inflict an even larger austerity package on the American economy than any European country has pursued. This week, 350 economists called on Congress to avoid budget cuts and instead focus on investments into infrastructure and education that would stimulate growth and create jobs.

Eurozone unemployment hit another record high last month of 11.6 percent. 18.4 million Europeans are out of work. In some countries, unemployment has hit 25 percent.

According to a new study from the National Institute for Economic and Social Research, a London-based research organization, the austerity measures implemented across Europe in an attempt to get the continent’s debt under control and stem its financial crisis have actually made matters worse, stunting growth and increasing debt:

In a damning examination of Europe’s coordinated fiscal consolidation, the London-based National Institute for Economic and Social Research said the ratio of debt to gross domestic product will be around 5 percentage points higher in both the U.K. and the euro zone because of the spending cuts and tax rises pursued from 2011 to 2013.

NIESR said the implications of its study–which is the first to model the quantitative impact of coordinated austerity measures across the EU–is that the current austerity strategy being pursued by individual member countries, as well as the EU as a whole, is fundamentally flawed and is making matters worse.

“Not only would growth have been higher if such policies had not been pursued, but debt-to-GDP ratios would have been lower,” the report, written by economists Dawn Holland and Jonathan Portes, said. “It is ironic that, given that the EU was set up in part to avoid coordination failures in economic policy, it should deliver the exact opposite.”

According to another recent study, 116 million Europeans are at risk of falling into poverty, while the continent is doubling down on austerity.

The U.S. has rebounded from the financial crisis faster than Europe, in part, because it did not engage in the same level of austerity, sucking money out of an economy that was already weak. However, the so-called “fiscal cliff” that it set to hit at the end of the year would actually entail more fiscal contraction than that experienced by several European countries that have gone all in on austerity.

According to the latest data from its government, Spain’s economy contracted for the fifth straight quarter during the three months ending in September. Despite this, Spain seems intent on doubling down on austerity measures, as Reuters reported:

Gross domestic product shrank for the fifth straight quarter between July and September, dropping 0.3 percent, while consumer prices rose by 3.5 percent year-on-year in October, the two sets of National Statistics Institute data showed.

Elected just under a year ago on an austerity ticket, [Prime Minister Mariano] Rajoy has signed off on a belt-tightening programme worth over 60 billion euros through to the end 2014 to cut the public deficit.

Spain, like most of the rest of Europe, has seen its growth stall as austerity measures have kicked in. Several European countries are facing recessions, or even depressions, due to misguided fiscal contraction amidst sky-high unemployment. And the countries that have done the most belt-tightening have seen the least growth.

U.S. conservatives continually claim that all the U.S. needs to do in order to boost its slow economic recovery is cut spending and reduce the nation’s debt. But Spain exemplifies how that approach can backfire. Not only has it been cutting spending since the financial crisis, but it ran budget surpluses before the crisis, having a lower public debt than Germany. Those surpluses didn’t protect it from its current catastrophe:

Now, Spain is facing 25 percent unemployment.

The U.S. is doing better than Europe because, among other factors, it didn’t go straight for austerity (and it has an independent central bank that could use stimulative monetary policy). However, the so-called “fiscal cliff” that is due to take effect at the end of the year would cause a more severe fiscal contraction than most of Europe has experienced.