Brussels, 07/01/2013 (Agence Europe) - A report by two International Monetary Fund (IMF) economists, Olivier Blanchard and Daniel Leigh, presented at the AGM of the American Economic Association on Friday 4 January 2013, reveals mistakes made in the calculation of the impact of austerity policies launched in 2010 on the economies, including those in Europe, implementing them.
The forecasts were based on a 0.5 multiplier for how reductions in public spending will affect a country's GD. In reality, however, the effect was three times bigger, 1.6. This means that economic production shrinks by more than a euro for every euro of public deficit reduction. One reason for the error might be the fact that the multiplier tends to be greater in times of recession.
The negative impact of austerity policies has, therefore, been sharply underestimated, as countries like Greece have repeatedly complained. This year will see Greece in its sixth consecutive year of a shrinking economy. All the same, austerity is still being recommended by the country's lenders, which require further austerity measures in return for the next cash instalments. Within the troika of lenders (the European Commission, IMF and European Central Bank), the IMF acknowledged in October that it had underestimated the negative impact of austerity and in November, it warned against the the social and political dangers of continuing to pursue austerity policies. (EL/transl.fl)