Squeezing economies

| 09/04/2010

(Economist): Across much of the rich world an era of budget austerity beckons. Government debt is rising faster than at any time since the second world war. By 2014 the public debt of big rich countries will reach an average of 110% of GDP, up by almost 40 percentage points from 2007, according to the IMF. How to alter this bleak trajectory will be policymakers’ most difficult task over the nextdecade. Financial markets are already forcing some into drastic action.

Greece plans to cut its deficit from 12.7% of GDP in 2009 to 3% by 2013, using spending cuts, tax hikes and heroic growth projections. Portugal has rushed out plans to cut its deficit from 9.3% last year to 3% by 2013. Britain’s election will be fought over the contours of future austerity.
But so far less than half of the OECD’s member countries have detailed medium-term plans to reduce their deficits. Their choices will have huge implications for the growth and structure of their economies. Worryingly given the stakes, economics offers surprisingly little certainty about either the optimal goal or the best way of getting there.
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