To cut or not to cut?

Press quote (The Wall Street Journal)
22 September 2010

"They're [the European Commission] acknowledging reality," said Simon Tilford, an economist at the CER. "This really does lend a lie to these claims that somehow fiscal retrenchment will be growth-positive." Mr Tilford and other economists say the commission's argument for austerity is in fact an exercise in magical thinking. Cutting deficits at a time when the economy is expanding strongly and demand for credit is high could help growth, because lower deficits will prevent the government from crowding out private investment. But with unemployment high and interest rates on the debt of the largest European economies at rock-bottom levels, slashing spending and raising taxes will only further depress the economy.