No Time For Austerity In Europe

France plans to increase real government spending by 1% in its 1999 budget. If, as seems likely, that pushes its deficit over the arbitrary ceiling of 3% of gross domestic product imposed by the Maastricht Treaty, a lot of doomsters will be wringing their hands. They needn't bother.

The world economy is on the skids and needs all the help it can get. A bit of stimulative fiscal policy from a region that's in robust health is welcome. This is not the time to stick mindlessly to the new financial orthodoxy.

These days that orthodoxy is called austerity. Before World War II, it was called retrenchment, and it both deepened and lengthened the Great Depression of the 1930s. Most of Continental Europe is now suffering from high unemployment rates of around 10%. The last thing it needs is a damper on spending, public or private, as the Asian contagion begins to drag down the economy.

The euro's advent, of course, is used to justify austerity. The limits on budget deficits and government borrowing are to guarantee that the new currency is strong. The same attitude toward austerity deters the new European Central Bank from cutting interest rates despite inflation of 1%.

What matters in today's increasingly morose world economy is not the small overshooting of a target but the composition of budgets. In this respect, the plans emerging from the negotiations to form the new German government are alarming. To give modest and back-loaded personal tax cuts, the new center-left administration is planning to stick it to business by removing tax write-offs. It is also talking of financing cuts in social security levies by increasing energy taxes. Quicker ways to snuff out yet more jobs are hard to imagine.

It's important to ensure that easier fiscal and monetary policies are perceived as an emergency step, due to the economic crisis at hand, not a permanent return to the old-style tax-and-spend days. But with that proviso in hand, Europe should not crucify itself on the cross of the euro.

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