Dirk Ehnts — Austerity and stupidity revisited

The title is not my creation, but just a continuation of the VoxEU article by the ECB’s Lorenzo Bini Smaghi. Here is the abstract:

Today’s austerity, many argue, is stupid. This column argues that today’s EZ austerity may arise from stupidity before the crisis – specifically lacklustre structural reform. Excess debt arose in nations maintaining unsustainable living standards and welfare systems in the face of poor growth. The Crisis forced radical adjustments such as austerity in a recession. It’s not austerity which caused low growth, but low pre-Crisis growth which ultimately caused austerity. The way out of austerity is fundamental pro-growth reforms that create room for more gradual fiscal adjustment.

I put this article aside to think about it because my first impression was that this piece is rather strange and deserves a strong reply. Maybe over time I would think differently? No, I don’t. Let me just very quickly go through the abstract.